NAIC Fall 2015 National Meeting recap

The National Association of Insurance Commissioners (NAIC) recently held its Fall 2015 National Meeting. There are several relevant items and future changes for insurance organizations from the Statutory Accounting Principles Working Group and Investment Classification Project.


Statutory Accounting Principles (E) Working Group

At the Fall Meeting the NAIC Statutory Accounting Principles (E) Working Group (SAPWG) adopted several nonsubstantive revisions to statutory accounting and exposed various substantive and nonsubstantive revisions, many of which are highlighted below.

Adopted nonsubstantive revisions to statements of statutory accounting (SSAPs) and other accounting items:

SSAP No. 1—Accounting Policies, Risks & Uncertainties and Other Disclosures

Revisions incorporate a disclosure for possible proceeds from insurance-linked securities. The disclosure requires information when the reporting entity may receive possible proceeds as the issuer, ceding insurer, or counterparty of insurance-linked securities. The disclosure for 2015 is in narrative form only, with a plan by the NAIC to revisit the disclosures in 2016 for data capture.

SSAP No. 61R—Life, Deposit-Type, Accident and Health Reinsurance

Revisions incorporate a disclosure to capture information regarding variable annuity contracts and reinsurance agreements with affiliated captive reinsurers. This disclosure sunsets after 2015 financial statements, with a subsequent disclosure to be considered in 2016. The disclosure requires the following for each transaction:

  • Type of benefits being reinsured
  • Description of the purpose of the transaction and significant terms of the reinsurance agreement
  • Description of any risks retroceded to a third party
  • Whether the reporting entity reinsures variable annuities in a stand-alone captive arrangement
  • Amount of reserves held by the captive reinsurer, the reserve methodologies utilized within that captive reinsurer, and how those differ from the requirements of Actuarial Guideline (AG) 43

SSAP No. 65—Property and Casualty Contracts

This incorporates a disclosure to identify professional employer organization’s aggregate unsecured high-deductible recoverables. The disclosure requires, “If the individual obligor is part of a group under the same management or control including the same manager such as a professional employer organization (PEO), list the individual obligors, each of its related group members, and the total unsecured aggregate recoverables on high deductible policies for the entire group.”

SSAP No.97—Investments in Subsidiary, Controlled and Affiliated Entities

Two changes were adopted related to SSAP No. 97:

  • Revisions incorporate a new disclosure for reporting entities that have insurance subsidiary, controlled, and affiliated entities (SCAs) for which the audited statutory equity of the insurance SCA includes permitted or prescribed practices
  • Revisions incorporate a new disclosure detailing the reported value for SCAs, as well as information received after filing the SCA with the NAIC

Appendix F—Policy Statements

A change was recommended and approved to disband the Emerging Accounting Issues (E) Working Group (EAIWG) and incorporate the interpretation process within the SAPWG, effective January 1, 2016.


The following substantive revisions to statutory accounting were exposed at the NAIC Fall National Meeting:

SSAP No. 41—Surplus Notes

NAIC staff was directed to concurrently expose a revised issue paper, after incorporating direction from the SAPWG, with a substantively revised SSAP No. 41R detailing revisions to the measurement guidance for holders of surplus notes. The exposure considers the following:

  • Inclusion of explicit impairment guidance; the proposed guidance is similar to what is included for bonds in SSAP No. 26
  • Reporting of surplus notes at amortized cost be expanded to include NAIC 2 designated surplus notes, in additional to NAIC 1 designated surplus notes
  • Removal of guidance duplicated in the Policy and Procedure (P&P) Manual
  • Removal of adoption of P&P Manual in SSAP No. 41R

Issue Paper No. 152—Short Sales

This proposes accounting guidance for short sales, as well as guidance for secured borrowing transactions, when the insurer is the transferee.

Issue Paper No. 153—Counterparty Reporting Exception for Asbestos and Pollution Contracts

This provides historical documentation of changes adopted for certain asbestos and pollution reinsurance contracts.


The following nonsubstantive revisions to statutory accounting were exposed at the NAIC Fall National Meeting:

SSAP No. 1—Accounting Policies, Risks & Uncertainties and Other Disclosures

  • Quarterly disclosure of restricted assets if significantly different from the prior year-end financial statement, consistent with the Preamble
  • Proposes to improve guidance and reporting of permitted and prescribed practices

SSAP No. 3—Accounting Changes and Corrections of Errors

Clarifies that amended financial statements shall be filed for material accounting errors unless otherwise directed by the domiciliary regulator, and for reporting discrepancies identified within a submitted annual financial statement.

SSAP No. 15—Debt and Holding Company Obligations

Rejects ASU 2015-15: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.

SSAP No. 26—Bonds

  • Presents two options to modify the reporting of Securities Valuation Office (SVO) bond-designated exchange-traded funds (ETFs): 1) New Category (Line Number) Change on Schedule D – Part 1, or 2) New Schedule D – Part 1, Section 1
  • Proposes amendments to various SSAPs and reporting tools to clarify the appropriate reporting of prepayment penalties within the investment schedules
  • Requests comments on whether accounting revisions are needed if the SVO no longer provides a five star designation after reviewing insurer certifications, and if insurers self-designate with disclosure in a general interrogatory

SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses

Solicits comments on issues regarding the reporting of subrogation expenses (i.e., gross versus net reporting), and to notify the Casualty Actuarial and Statistical (C) Task Force of the exposure.

SSAP No. 86—Derivatives

  • Incorporates the generally accepted accounting principles (GAAP) definition of weather derivatives and proposes to adopt, with modification, EITF 99-02: Weather Derivatives to require weather derivatives to be reported and valued consistently with other derivatives under SSAP No. 86
  • Proposes to incorporate a definition of “notional principal”

SSAP No.97—Investments in Subsidiary, Controlled and Affiliated Entities

  • Clarifies that ownership of an exchange traded fund (ETF) or mutual fund does not represent ownership in an underlying entity within the scope of SSAP No. 97, unless ownership of the ETF actually results in “control” of an underlying company
  • Clarifies accounting for non-insurance SCA and clarifies adjustments for non-insurance SCAs meeting the revenue and activity test; the change specifies the treatment of assets that are nonadmitted at the insurance company being transferred to a non-insurance SCA

SSAP No. 107—Risk-Sharing Provisions of the Affordable Care Act

The exposure proposes for reporting periods on or after December 31, 2016, the risk corridors roll-forward is amended to require disclosure of the risk corridors asset and liability balances and subsequent adjustments by program benefit year. The receivable or payable in the roll-forward will reflect the prior end balance for the specified benefit year. For reporting periods ending on or after December 31, 2016 for both quarterly and annual reporting the following information is required for risk corridors balances by program benefit year:

  • Estimated amount to be filed or final amounts filed with federal agency
  • Amounts impaired or amounts not accrued for other reasons (not withstanding collectability concerns)
  • Amounts received from federal agency
  • Asset balance gross of nonadmission
  • Nonadmitted amounts
  • Net admitted assets

Investment Schedules

This exposure proposes quarterly reporting of electronic-only data as a NAIC supplemental filing that includes the Committee on Uniform Security Identification Procedures (CUSIP), par value, book/adjusted carrying value (BACV), and fair value of Schedule D investments.


Investment Classification Project

The NAIC continued its work on the Investment Classification Project. The NAIC has been working to address issues brought to its staff and exposed as a SAPWG substantive active agenda item during 2013. The SAPWG directed NAIC staff to continue working with issuers, vendors and industry to address questions on a proposed calculated amortized cost method for SVO bond-designated ETFs.

For more information on these topics, or to learn how Baker Tilly insurance specialists can help, please contact our team.