NAIC 2018 Spring Meeting

Amid March Madness, the NAIC and interested parties convened in Milwaukee, Wisconsin to enjoy fried cheese curds and the NAIC’s Spring Meeting. The last time Wisconsin welcomed the NAIC was in 1911. While not on any official brackets, a summary of the NAIC Spring Meeting highlights follow.

A printable summary of the NAIC Spring Meeting highlights can be downloaded below.

Statutory Accounting Changes

The Statutory Accounting Principles (E) Working Group (SAPWG) adopted various updates to statutory accounting guidance during the Spring Meeting.

Goodwill Limitations in SSAP Nos. 68 and 97
Ref# 2017-18 | SSAP 68 | Effective 12.31.18

Additional disclosures are required for unamortized goodwill reported as a component of an investment resulting from a business combination under the statutory purchase method, including:

  • Acquisition date
  • Original amount of admitted goodwill
  • Admitted goodwill as of the reporting date and admitted goodwill as a percentage of the subsidiary, controlled and affiliated (SCA)’s book adjusted carrying value (gross of admitted goodwill)

Wash Sale Disclosure
Ref# 2017-31 | SSAP 103R | Effective 03.24.18

Wash sale disclosures should exclude cash equivalents, derivatives and short-term investments with credit assessments equivalent to NAIC 1 or 2. Wash sale disclosures should be included in the financial statements when a security is sold.

Double-Counting of Surplus Notes
Ref# 2017-21 | SSAP 41R, 97 | Effective 03.24.18

Surplus notes issued by SCA entities should be eliminated in the SCA’s value reported in the parent insurance company’s financial statements.

The revision also clarifies the existing concept restricting the double counting of surplus notes.

Impact of Future Settled Premiums on Option Valuations
Ref# 2016-48 | SSAP 86 | Effective 12.31.18

Additional disclosures are required for individual derivative contracts with financing premiums, including:

  • Whether premium cost is paid throughout the contract, or at derivative maturity
  • Next premium cost payment date
  • Total premium cost
  • Premium cost paid in prior years
  • Current year premium cost paid
  • Future unpaid premium cost
  • Fair value of derivative, excluding impact of financing premiums
  • Unrealized gain/loss, excluding impact of financing premiums

Updates to the Presentation and Disclosure of Pension and Postretirement
Ref# 2017-30 | SSAP 92, 102 | Effective 03.24.18

The disclosure requirements for level 3 investment roll-forwards for pension and other post-retirement plan assets is removed.

Updates to INT 02-22 and INT 09-08
Ref# 2017-36 | SSAP Appendix B and H | Effective 03.24.18

INT 02-02
Accounting for the U.S. Terrorism Risk Insurance Program is modified to clarify the INT will be in effect as long as the Program is in effect.

INT 09-08
Accounting for Loans Received Under the Federal TALF Program is nullified as there are no more loans outstanding under this program.

Rejected ASUs

The following FASB ASUs were rejected by the SAPWG:

  • ASU 2014-09, Revenue from Contracts with Customers
  • ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date
  • ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations
  • ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing
  • ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients
  • ASU 2017-06, Defined Benefit Pension Plans, Defined Contribution Pension Plans and Health and Welfare Benefit Plans – Master Trust Reporting

US-EU Covered Agreement

In February, the Reinsurance (E) Task Force held a public hearing to address the reinsurance collateral provisions of the Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement). The Task Force heard from 18 speakers, including a representative of the U.S. Department of the Treasury, U.S. domestic insurers, U.S. trade associations, international reinsurers and international trade associations. The NAIC also received 20 comment letters from a wide variety of stakeholders and interested parties.

The Covered Agreement contains provisions on group capital, group supervision and reinsurance, including eliminating the reinsurance collateral requirements for European Union (EU) reinsurers that meet certain requirements. For EU reinsurers to be eligible for collateral elimination, the states need to amend their credit for reinsurance laws and will have five years to adopt the necessary reinsurance reforms

Based on the feedback, the Task Force recommended and the Financial Condition (E) Committee adopted:

  • A request for NAIC Model Law Development to amend the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) to conform to the requirements of the Covered Agreements and afford reinsurers in other NAIC-qualified jurisdictions, with similar reinsurance collateral requirements, provisions regarding group supervision, group capital, information sharing and enforcement.
  • Charges to the Reinsurance (E) Task Force to revise Models #785 and #786, and processes to implement changes to the models.
  • Charge to the Capital Adequacy (E) Task Force to “possibly modify the Life and Health risk-based capital (RBC) formulas specific to reinsurance credit risk charges to be based on the financial strength of the reinsurer consistent with the Property & Casualty (P&C) RBC formula, giving due consideration to public default experience and current factors used by credit rating agencies”.
  • Charge to the Statutory Accounting Principles (E) Working Group to “possibly modify Schedule F and any corresponding annual financial statement pages to determine how to best reflect expected changes to” Models #785 and #786, considering whether an allowance for doubtful accounts is appropriate.

The Task Force hopes to have draft model law revisions by the Summer Meeting and adoption of the revised model laws at the Fall Meeting.

Innovation, Technology and Cybersecurity

The Innovation and Technology (EX) Task Force heard a status update on the adoption of the Insurance Data Security Model Law #668. Although adopted by the NAIC in October 2017, South Carolina and Rhode Island have introduced legislation to adopt the Model Law.

Commissioner Elizabeth Dwyer (RI) suggested the Task Force explore coordinated electronic reporting related to Model #668. Interested parties and Task Force members expressed support noting a reporting tool would bring consistency, cost savings and ease of use to have one system in place for all users. Interested parties should direct comments to Commissioner Dwyer and Director Raymond Farmer (SC) regarding this new initiative.

 

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Lauren Williams
Lauren Williams | Principal
Liz Nielson
Liz Nielson | Senior Manager
Davey Steele
Davey Steele | Senior Manager