Northeastern Chapter IASA Annual Regional Conference NAIC Fall Meeting Update Newport, RI November 20, 2014 D. Keith Bell, Senior Vice President, Accounting Policy The Travelers Companies, Inc. Peter Austin, Second Vice President, Accounting Policy The Travelers Companies, Inc.
Agenda Learning Objectives Overview of the NAIC Committee Structure and Accounting Standard Setting Process NAIC Fall 2014 National Meeting Update: Statutory Accounting Principles Working Group (SAPWG) Blanks Working Group (BWG) Group Solvency Issues Working Group Corporate Governance Working Group
Learning Objectives Description of Session and Learning Objectives: The objective of this session is to provide an update of the NAIC Fall 2014 National Meeting with a primary emphasis on the Statutory Accounting Principles Working Group (SAPWG), the Blanks Working Group (BWG), the Corporate Governance Working Group, and the Group Solvency Issues Working Group. The Emerging Accounting Issues Working Group took no actions at this meeting. The session will also provide an overview of the NAIC accounting standards setting process.
Overview of SAPWG & EAIWG SAPWG Membership Dale Bruggeman Jim Armstrong Kim Hudson Linda Sizemore Eric Moser Caroline Brock/ Stewart Guerin Judy Weaver Patricia Gosselin Stephen Wiest Steve Johnson Doug Slape/ Jamie Walker Doug Stolte/ David Smith Tom Houston Ohio (Chair) Iowa (Vice Chair) California Delaware Illinois Louisiana Michigan New Hampshire New York Pennsylvania Texas Virginia Wisconsin Statutory Accounting Principles WG (SAPWG) 13 States OH Chair IA Vice Chair Financial Condition (E) Committee 13 Members RI Chair ME Vice Chair AP&P Task Force 39 Members CA Chair VT Vice Chair Emerging Accounting Issues WG (EAIWG) 13 Members IA Chair OH Vice Chair Plenary 55 NAIC Members Executive Committee 19 Members Other Committees & Task Forces Capital Adequacy Task Force (CADTF) 21 Members TX Chair UT Vice Chair Blanks WG 21 Members UT Chair CA Vice Chair EAIWG Membership Jim Armstrong Dale Bruggeman Richard Ford Kim Hudson Kathy Belfi Eric Moser Caroline Brock/ Stewart Guerin Judith Weaver Stephen Wiest Steve Johnson Doug Slape/ Jamie Walker Doug Stolte/ David Smith Tom Houston Iowa (Chair) Ohio (Vice Chair) Alabama California Connecticut Illinois Louisiana Michigan New York Pennsylvania Texas Virginia Wisconsin Only SAPWG & EAIWG are Authorized to Modify the AP&P Manual
Overview of the Standard Setting Process Process Form A Issue paper, if applicable Exposure draft Adoption and effective date Type of changes Substantive changes are generally defined as amendments that would change or alter the meaning or the interpretation of the guidance. Non-substantive changes are generally defined as changes that primarily pertain to technical revisions (e.g., changes to titles, words, definitions, procedures, grammar corrections, reference errors, etc.) that are necessary in order to clarify an intent that has already been thoroughly documented either in the NAIC Proceedings, the Valuation Manual, or other NAIC guidance.
SAPWG Update During the Fall National Meeting, the SAPWG took the following actions: Ref. # 2014-16, Restricted Assets Clarification Adopted guidance to SSAP No. 1, Disclosure of Accounting Policies, Risks and Uncertainties, and SSAP No. 4, Assets and Nonadmitted Assets to clarify that the terms admitted assets and restricted assets are not interchangeable. It is possible for both admitted assets and non-admitted assets to be restricted (e.g., collateral pledged). Ref. # 2014-20, Clarification of Income Tax Footnote Adopted guidance to SSAP No. 101, Income Taxes to clarify that the RBC Ratio identified in footnote 3 should be the RBC for the current reporting period in the process of being filed (i.e., not the prior year RBC). The revisions identify that the denominator used in the authorized control level RBC filed for the most recent calendar year is to be used for the following year interim reporting.
SAPWG Update Ref. # 2014-19, Clarification of Interpretations Incorporated into SSAP No. 55, Unpaid Claims, Losses and Loss Adjustment Expenses Adopted guidance to SSAP No. 55 to incorporate prior interpretations which provide: (1) claims related losses for extra-contractual losses and bad faith lawsuits are included in losses, and; (2) technical revisions to the accounting for prepaid loss adjustment expenses. Interested Parties noted that the guidance for reporting claims related extra-contractual obligations and bad faith payments in losses is incomplete. There are some extracontractual obligations and bad faith payments that are related to the claims adjusting process, but not to a specific claim or policy (i.e., these may be non-claim specific). As such, these claims adjustment related extra contractual payments may not be clearly assignable to a state, line, accident year, or legal entity (in the case of a quota share reinsurance pool), as would be required for reporting of any loss payment. Interested Parties will prepare a Form A for SAPWG and the Casualty Actuarial Task Force to address this issue. Ref. # 2014-18, Clarification in Separate Accounts Disclosures Made technical revisions to SSAP No. 56, Separate Accounts to clarify the reporting of the disclosures currently captured within Note 34 as required by SSAP No. 56.
SAPWG Update Ref. # 2014-06, SSAP No. 57, Title Insurance Premium Classifications Deleted the disclosure for the amount of premium reported on the GROSS all-inclusive and GROSS risk-rate revenue basis with corresponding revisions to risk-rate terminology. The revised disclosure is consistent with the laws of many states which require insurers to report experience by rate type. Ref. # 2014-21, Updates to Allow the Group Long-Term Disability Table Incorporates changes to Appendix A-010 adopted by the Health Actuarial Task Force in the Health Insurance Reserves Model Regulation (#10) requiring the 2012 Group Long- Term Disability Valuation table as of January 1, 2017, with early adoption permitted. This is to be accounted for as a change in accounting in accordance with SSAP No. 3, Accounting Changes and Corrections of Errors (i.e., changes are reported with a cumulative effective catch-up through unassigned surplus). Ref. # 2014-22, Updates to Health Actuarial Guideline XLVII Incorporates guidance on blending Company experience with the 2012 Group Long-Term Disability Valuation table and implementation guidance for the updates to the Model Law on Minimum Reserve Standards for Individual and Group Health Insurance Contracts (Model Law 10). The new guidance will be incorporated into Appendix C of the AP&P Manual.
SAPWG Update Ref. # 2014-23, SSAP No. 69, Treatment of Non-Cash Items in the Cash- Flow Statements NAIC Staff was directed to draft revisions to SSAP No. 69 to clarify that items included in the cash flow statement should be limited to those that include cash as defined as: cash, cash-equivalents, and short-term investments. NAIC Staff was also instructed to expand the disclosure to include non-cash operating items. The intent of the clarifying guidance is to remove the current inconsistencies between the NAIC Annual Statement Instructions and SSAP No. 69. Ref. # 2013-36, Investment Classification Review The purpose of this project is to review investment related SSAPs and to develop potential clarification of the definitions, scope, and the related accounting method and reporting to address certain items which may not currently be addressed related to: (i) definitions used by statutory accounting versus capital markets, FASB and SEC usage; (ii) allowing the look-through approach for certain investments held by insurers; (iii) inconsistencies between reporting on Schedules D and BA; and (iv) different accounting treatment for some investments by type of insurer. This proposal may result in substantive changes to existing SSAPs due to changes in the exclusions, and may also result in a new SSAP to include investments that are deemed to be outside the specific investment types. A referral was made to the BWG for the Investment Subgroup charge to consider changes made by this project.
SAPWG Update Ref. # 2014-23, Investment Classification Project (Continued) Interested Parties repeated its concerns to the SAPWG that the project may result in unintended changes to existing guidance, and suggested that the SAPWG focus its immediate attention on areas where there are currently definitions. NAIC Staff was directed to develop a security definition and work on an investment funds schedule for potential inclusion in the annual statement. Ref. # 2014-25, SSAP No. 41, Surplus Notes The SAPWG confirmed that surplus notes with a rating of NAIC 1 should continue to be carried at amortized cost. NAIC Staff was directed to clarify existing guidance around non-rated surplus notes and surplus notes with a designation below NAIC 1. Ref. # 2014-12, Issue Paper No. 150, Accounting for the Risk-Sharing Provisions of the Affordable Care Act Adopted the Issue Paper which recommends the accounting for three programs known as risk adjustment, reinsurance and risk corridors that take effect in 2014. This issue paper was drafted pursuant to the Working Group s direction at the Summer National Meeting to permit greater admissibility for the risk adjustment and risk corridors receivables.
SAPWG Update Summary of ACA ACA Fee: Include recognition of a liability and expense for the ACA fee payable on January 1 of the fee year beginning January 1, 2014 and thereafter. Include recognition of the fee in special surplus as calculated from the prior data year beginning December 31, 2014 and thereafter. Disclosure of the fee is required December 31, 2013, and thereafter, for the fee payable in following year. ACA Risk Provisions: Period end disclosures quarterly beginning January 1, 2014 and thereafter. Roll-forward disclosures quarterly beginning December 31, 2014 and thereafter.
BWG Update During the Fall National Meeting, the BWG took the following actions: Adopted the BWG September 19, 2014 minutes that contained the PBR Supplement Proposal (BWG Ref. 2014-18) for the reporting of XXX/AXXX Reinsurance in the Life and Fraternal Blanks. This applies to all XXX/AXXX cessions and is primarily designed for a captive framework. Adopted enhancements to the Investment Reporting Subgroup to include a review of the changes associated with the investment classification project of the SAPWG. Adopted guidance for reporting the Medicare Advantage, Part C and Medicare Part D business in the Government Business (Excluded by Stature) column of the Supplemental Health Care Exhibit. Exposed the Corporate Governance (E) Working Group memorandum dated August 17 to request a review of possible reporting redundancies between the Corporate Governance annual filing and the general interrogatories of the annual statement.
BWG Update Exposed two new items for comment, with comments due by February 27, 2015: Ref 2014-19 BWG, which proposes to change the reference for Line 11 of the General Interrogatories, Part 2 from minimum net worth to statutory net worth to statutory minimum capital and surplus. This proposal would apply to the annual statement instructions and blanks for health care companies, and would also modify the description for Line 3 of the Five Year Historical Data page to match reference in Line 11 of the General Interrogatories, Part 2. Ref 2014-20 BWG, which proposes to modify the instructions and illustrations for Note 32 and 34 to correct inconsistencies in the use of market value and fair value in the instructions for those notes. This proposal, if adopted, will apply to life and fraternal statements.
Group Solvency Issues Working Group The Group Solvency Issues Working Group is developing potential enhancements to the current regulatory solvency system as it relates to groupsolvency-related issues. This includes procedures for state regulators to use when leading and participating in supervisory colleges. At the Fall 2014 National Meeting, the Working Group discussed the proposed changes to the NAIC Model Insurance Company System Regulatory Act (#440) related to the authority for a state to act as a group-wide supervisor.
Corporate Governance Working Group The Corporate Governance Working Group finalized and recommended policy decisions regarding enhancements to existing U.S. corporate governance. This included a review of the current International Association of Insurance Supervisors (IAIS) principles and standards related to corporate governance. The Working Group was disbanded at the Fall 2014 National Meeting, as its objectives have been completed with the passing of the Corporate Governance Annual Disclosure Model Act (#305) and Corporate Governance Annual Disclosure Model Regulation (#306) as well as an amendment to the Annual Financial Reporting Model Regulation (#205) which requires insurers meeting certain requirements to maintain an internal audit function. The primary issues with the Model are: (1) to ensure that the confidentiality language is consistent with other model laws (e.g., ORSA, Holding Company, etc.), and (2) to eliminate duplication of information that has been already provided.
Questions and Discussion Questions