bkd insurance seminar

Connie Jasper WoodroofNAIC Liaison

BKD Insurance SeminarStatutory Update/Annual Statement Changes

2

• Statement Reporting

• Risk-Based Capital

Agenda

3

Statement Reporting

• Clarification added to 28.0597, 28.0598 in annual and 17.5097, 17.5098 in quarterly• Questions apply only to INVESTED assets

General Interrogatories – Part 1Assets Managed by Unaffiliated Individual/Firms

4

General Interrogatories – Part 1 “Grandfathered” Schedule BA Investments

5

35. By assigning FE to a Schedule BA non-registered private fund, the reportingEntity is certifying the following elements of each self-designated FE fund.

a. The shares were purchased prior to January 1, 2019.

b. The reporting entity is holding capital commensurate with the NAICDesignation for the security.

c. The security had a public credit rating(s) with annual surveillance assignedby an NAIC CRP in its legal capacity as an NRSRO prior to Jan. 1, 2019.

d. The fund only or predominately holds bonds in its portfolio.

e. The current reported NAIC Designation was derived from the public creditrating(s) with annual surveillance assigned by an NAIC CRP in its legalcapacity as an NRSRO.

f. The public credit rating(s) with annual surveillance assigned by an NAICCRP has not lapsed.

Has the reporting entity assigned FE to Schedule bA non-regulated private funds that compliedwith the above criteria?

Yes [ ] No [ ]

• 5F, 5G, 5H, 5I (repurchase and reverse repurchase agreements)• Eliminates much of the detail listing of transactions, instead using a

narrative approach• 5L(4)

• Requires disclosure of collateral received and reflected as assets in financial statements• Applies to LAH/Fraternal and Property/Casualty

• 5O – Structured Notes• Has been eliminated because of Schedule BA reporting

Notes to FinancialsNote 5

6

• Note #8 – Derivatives• New disclosure from adoption of SSAP No. 108 – Derivative

Hedging Variable Annuity Guarantees• Note #9 – Income Taxes

• Instructions and illustration additions for Repatriation Transition Tax (RTT) and Alternative Minimum Tax (AMT) Credit• INT 18-03: Additional Elements Under the Tax Cuts and Jobs Act

• Note 10O – Loss Tracking• Disclosure expanded beyond SCA companies• Loss tracking of SSAP No. 48 investments that use equity method of

accounting• Was effective year-end 2018, but now has official instructions

Notes to Financials

7

• Note #12 – Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans• New disclosures, but also some reduction of previous disclosures

• Note #20 – Fair Value• Elimination of disclosure of transfers between Level 1 and Level 2• Elimination of discussion of company policy for recognizing Level

transfers• From revisions to SSAP No. 100R

• Notes #21 – Other Items• Amount that could be realized on life insurance where reporting

company is owner and beneficiary or has otherwise obtained rights to control policy• From revisions to SSAP No. 21

Notes to Financials

8

Summary Investment ScheduleSimplified Format

• Property/Casualty and Health companies now required to categorize their mortgage loans into the same sub-classifications as the LAH/Fraternal companies

For example:

Investment SchedulesSchedule B – Parts 1 and 2

10

• New reporting categories for all insurers

Fixed or Variable Interest Rate Investments that have the Non-Registered Private Funds withUnderlying Assets Having Characteristics of:

Bonds:NAIC Designation Assigned by the Securities Valuation Office (SVO)

Unaffiliated 0799999Affiliated 0899999

NAIC Designation Not Assigned by the Securities Valuation Office (SVO)Unaffiliated 0999999Affiliated 1099999

Investment SchedulesSchedule BA

11

• New reporting categories for all insurers

Joint Ventures, Partnership or Limited Liability Company Interests for Which that have the Underlying Assets Have the Characteristics of:

Fixed Income InstrumentsNAIC Designation Assigned by the Securities Valuation Office (SVO)

Unaffiliated 1599999Affiliated 1699999

NAIC Designation Not Assigned by the Securities Valuation Office (SVO)Unaffiliated 1799999Affiliated 1899999


12

This approach no longer just for LAH/Fraternal companies

• Investments in structured settlement income streams (structured settlements) to be reported on Schedule BA• Classify as “Any Other Class of Asset”• Revisions to SSAP No. 21

• Reporting company acquires legal right to receive payments


13

• Mortgage reference securities to be reported in “U.S. Special Revenue and Special Assessment….” category• SSAP No. 43R

• Guidance added for mortgage-referenced securities• Must be issued by government sponsored enterprise

• Currently only offered by Freddie Mac and Fannie Mae

• Realized gain/(loss)• Instructions for securities called where consideration received is less

than par where prepayment penalties or acceleration fees• References SSAP No. 26R

• Difference between BACV and par value at time of disposal

Investment SchedulesBonds

14

• INT 19 – 02• Reporting entities permitted to exchange “45-day securities” for

“55-day securities” without any material change to the securities• Interprets SSAPs No. 26R and No. 43R

• Exception to exchange and conversion guidance; continuation of the amortized cost basis of the security surrendered to the new security received in the exchange

• No gain/loss recognized on exchange• Permits reporting entities to adjust the security’s basis (decrease) for

the float compensation received.

Investment SchedulesFreddie Mac Single Security Initiative

15

• Revises SSAP No. 43R for reporting different lots of same CUSIP with different NAIC designation• Option

• Report in aggregate at the lowest NAIC designation, or• Report separate aggregations by NAIC designation

• Adopted at August Meeting

Investment SchedulesItem 2018-03

16

• Must use SSAP No. 25 to determine if economic transaction• Reported actual cost should be the initial recognized value

• Both revisions to SSAP No. 26R• If qualifies as economic transaction, record at fair value as

outlined in SSAP No. 25• Revision to SSAP No. 72

Investment SchedulesBonds Received as Property Dividend or Capital Contribution

17

• Revises several SSAPs for affiliated (related party) transactions• Applies concepts of SSAP No. 25 to investment SSAPs• Includes situation when transaction between related parties is

conducted through a non-related intermediary

Investment SchedulesItem 2019-03

18

• Report as affiliated or unaffiliated, as well as issued or acquired

Investment Schedules Bonds - Bank Loans

19

Parent, Subsidiaries and AffiliatesIssuer ObligationsResidential Mortgage-Backed SecuritiesCommercial Mortgage-Backed SecuritiesOther Loan-Backed and Structure SecuritiesAffiliated Bank Loans – IssuedAffiliated Bank Loans – AcquiredSubtotals – Parent, Subsidiaries and Affiliates

Unaffiliated Bank LoansUnaffiliated Bank Loans – IssuedUnaffiliated Bank Loans – AcquiredSubtotals – Unaffiliated Bank Loans

• Revision of bond characteristics codes• “4” restricted to SSAP No. 43R items• “5” limited to variable interest payments• “6” capture of mortgage reference securities reported under scope

of SSAP No. 43R• Specifies some other structured securities and weather derivatives not

be reported as bonds, but as derivatives• Deletes specific reference to inclusion of insurance-linked securities, IOs,

mortgage-referenced securities not actually backed by a pool of assets

Investment SchedulesBonds

20

• Market Indicator no longer being used• Column removed from the reporting of common stock• No longer part of NAIC Designation for preferred stock

• Includes those with underlying characteristics of preferred stock on Schedule BA

• Existing electronic columns indicate where fair value was obtained

Investment SchedulesStocks

21

Market Indicator

• “P” and “RP” prefixes no longer used as part of NAIC Designation

• Reporting category used to designate separate perpetual preferreds from redeemable preferreds

Investment SchedulesPreferred Stock

22

Industrial and Miscellaneous (Unaffiliated) Perpetual Preferred 8499999Industrial and Miscellaneous (Unaffiliated) Redeemable Preferred 8599999Parent, Subsidiaries and Affiliates Perpetual Preferred 8699999Parent, Subsidiaries and Affiliates Redeemable Preferred 8799999

• New reporting categories• Separation of publicly traded and other• Unit Investment Trusts, Closed-End Funds

• Both defined in SSAP No. 30R

Industrial and Miscellaneous (Unaffiliated) Publicly Traded 9099999Industrial and Miscellaneous (Unaffiliated) Other 9199999Parent, Subsidiaries and Affiliates Publicly Traded 9299999Parent, Subsidiaries and Affiliates Other 9399999Mutual Funds 9499999Unit Investment Trusts 9599999Closed-End Funds 9699999

Investment SchedulesCommon Stock

23

• Addition of NAIC Designation column• To be used ONLY for fund investments assigned a designation by

SVO• Funds that only or predominately hold fixed income assets

• Foreign (non-SEC registered) open-end funds• Allowed to be reported as mutual funds in Schedule D • # used in Code column to identify

• Foreign open-end funds defined as funds governed and authorized in accordance with regulations established by the applicable foreign jurisdiction

Investment SchedulesCommon Stock

24

• Part A • New reporting categories for hedging effective instrument for

variable annuity guarantees under SSAP No. 108• New section for SSAP No. 108 Adjustments

• Part B• New section for SSAP No. 108 Adjustments

• Parts A and B – Verification• New line for reporting SSAP No. 108 adjustments

• New Part E• Reporting of specific derivatives and the hedging programs subject

to SSAP No. 108• 18 columns of reporting

Investment Schedules Schedule DB - Derivatives

25

• SSAP No. 2• Regardless of maturity date, derivatives not reported as cash

equivalents or short-term investments; report in Schedule DB• SSAP No. 26R

• Securities meeting para 3 definition BUT contractual amount paid at maturity & at risk for other than failure of borrower to pay contractual amount due (structured notes), excluded from 26R reporting• Report as derivative under SSAP No. 86 in Schedule DB

• SSAP No. 86• Inclusion of structured notes

Investment SchedulesItem 2018-18, effective 12/31/2019

26

• New instructions for funds for Line 2 – Single 10 largest exposures• For non diversified funds, identify actual exposures and aggregate

with directly held investments to determine 10 largest exposures• New disclosure of ten largest fund managers

Investment SchedulesSummary Investment Risks Interrogatories

27

• New format for Analysis of Operations• Separate reporting page for types of insurance

• Individual life, group life, individual annuities, group annuities, A&H• Summary page (grand total page)• Applies to general and separate accounts

LAH/Fraternal Statement

28

• Individual Life Insurance

• Group Life Insurance (N/A for Fraternals)

LAH/FraternalAnalysis of Operations

29

• Individual Annuities• Group Annuities


30

• Accident and Health


31

• Summary (Grand Total Page)

• Addition of Appendix containing definitions of the lines of business

• Expense allocation instructions moved to the Appendix• Elimination of Interest Sensitive (1) and Annuity Operations

supplements (2)• Information now provided in the Analysis of Operations


32

LAH/Fraternal

• Analysis of Reserves• Same division of business types as

used for Analysis of Operations• Same columnar format

• Exhibit 6 – A&H Business• New columnar reporting (lines

remained the same)

• Does company use derivatives to hedge variable annuity guarantees subject to fluctuations?

LAH/Fraternal StatementGeneral Interrogatories

34

• Note #32 – Analysis of Annuity Actuarial Reserves and Deposit Type Contract Liabilities by Withdrawal Characteristics • New line added to reporting format to identify surrender charges

over 5% in the current year that will be less than 5% in the subsequent year for Individual Annuities

• New sections added for • Group Annuities• Deposit-Type Contracts

• From revisions to SSAP No. 52

LAH/Fraternal StatementNotes to Financials

35

• New Note #33 – Analysis of Life Actuarial Reserves and Deposit Type Liabilities by Withdrawal Characteristics • Disclosure of account value, cash value and reserve• Separate reporting for general account and separate account

nonguaranteed• Revisions from SSAP No. 51R

LAH/Fraternal StatementNotes to Financials

36

• Asset Valuation Reserve (AVR)• Revision of AVR factors

• Revisions related to Life RBC factor changes in 2018 due to the Tax Cuts and Jobs Act

• VM-20 Reserves Supplement• Which products are to be reported on which lines

• More specific than previous• Columnar reporting revisions, including the reporting of deferred

premium asset

LAH/Fraternal

37

• Assets page• Deletion of Contract Loans reporting line

• SSAP No. 49 – Policy Loans and SSAP No. 56 – Separate Accounts indicate that all policy loans are to be reported in the general accounts

LAH/FraternalSeparate Accounts

38

• New Line 29 for reporting of International business• Previously treated as a write-in

• Created crosscheck problems• Although new line will appear on all state pages, provide data ONLY

on the “Other Alien” page and the “Grand Total” page• Consistency with Underwriting and Investment Exhibit pages• For printing purposes, the font size for the page was also reduced

Property/CasualtyState Page – Exhibit of Premiums and Losses

39

• Revisions• Mostly instructional changes • Definition of “qualified actuary”• Changes to Exhibit B, which is data captured

Property/CasualtyActuarial Opinion

40

• No Health-specific revisions

Health Statement

41

42

Risk-Based Capital

All RBC Formulas

• New RBC procedures• Preamble (exposed for comment)• C0, R0, H0• Renamed Insurance Affiliates and

Misc. Other• No formula changes

• Health Stop Loss Interrogatories• Split between specific stop loss and

aggregate stop loss

43

• PR017 and PR018• Annual updating of Line 1 factors• Updating of Line 4 factors

• Industry Loss & Expense RBC%• Asset Concentration

• Indicate inclusion of unaffiliated preferred stock only• No factor changes

• Instructions• Correct overlooked 2018 instructional changes for treatment of

affiliated bonds

Property RBC

44

• Revisions to match instructions with reporting format calculation• Was conflict between instructions and formula computation for

selected average growth rate• Instructions changed to match formula calculation

Property RBCExcessive Premium Growth

45

• Combined the two RBCs into one• Reference changes on LR024 because of statement Exhibit 6

changes• Growth Operational Risk eliminated• Revised cash flow modeling for variable annuities and similar

products for C-3• Transition for 2019; two options available

Life/Fraternal

46

• Asset Concentration• Correct bond and preferred stock line descriptions

• No factor change• Growth Operational Risk removed

Health RBC

47

48

48

Contact Information

Connie Jasper Woodroof

[email protected]

800.373.3366 x5761

mailto:[email protected]

50

50

The information contained in these slides is presented by professionals for your information only and is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

http://www.nasbaregistry.org/

bkd insurance seminar

Documents