naic bulletin: january 2017 - ey - united statesfile/naicbulletin_00238-171us_18january2017.pdf ·...

The National Association of Insurance Commissioners (NAIC) recently held its Fall National Meeting on 9-13 December 2016 in Miami. This publication highlights issues that various NAIC groups have addressed since the 2016 Summer National Meeting. We hope you find it informative, and we welcome your comments. Please contact your local EY professional for more information.

What you need to know • The Executive Committee and Plenary adopted the XXX/AXXX Credit for Reinsurance Model

Regulation to address the regulation of term life (i.e., XXX) and universal life with secondary guarantees (i.e., AXXX) reserve financing transactions.

• The Property and Casualty (C) Committee adopted the 2016 Workers’ Compensation Large Deductible Study performed by the NAIC/IAIABC Joint (C) Working Group detailing the use and potential risks of policies with large deductibles.

• Various NAIC groups have taken actions to address the effect of long-term care insurer insolvencies on the NAIC statutory framework, including revisions to SSAP No. 35R, Guaranty Fund and Other Assessments, to allow insurers to consider expected renewals of short-duration health contracts in determining the asset recognized from accrued guaranty fund liability assessments.

• The Variable Annuities Issues (E) Working Group made progress in its efforts to develop the scope and objectives of the 2017 Quantitative Impact Study that will assess the feasibility of potential changes in the statutory accounting, reserving and risk-based capital (RBC) requirements for variable annuities.

• The NAIC elected its 2017 executive officers: President Ted Nickel (Wisconsin), President-elect Julie Mix-McPeak (Tennessee), Vice President Eric A. Cioppa (Maine) and Secretary-Treasurer David Mattax (Texas).

January 2017

NAIC Bulletin Highlights of the National Association of Insurance Commissioners meeting

Fall 2016 update

In this issue: Executive Committee and Plenary .......... 2

Cybersecurity (EX) Task Force ................. 2 Principle-based reserving ........................ 2

PBR pilot project ....................................... 3 Valuation Manual amendments ................ 4

XXX/AXXX Reinsurance Framework ....... 4 Accreditation standards ........................... 5

Variable Annuity Framework ................... 5 Quantitative impact study ........................ 5 Effect on statutory accounting

and reporting ........................................ 5 Accounting Practices and Procedures (E) Task Force ........................................ 5 Statutory Accounting Principles (E)

Working Group...................................... 6 Blanks (E) Working Group ......................... 7

Life Insurance and Annuities (A) Committee ............................................. 7 Life Actuarial (A) Task Force .................... 7 VM-22 (A) Subgroup ................................ 8 Unclaimed Life Insurance Benefits (A)

Working Group...................................... 8 Health Insurance and Managed Care (B) Committee ............................................. 8 Health Actuarial (B) Task Force ................ 9 Long-Term Care Actuarial (B)

Working Group...................................... 9 Property and Casualty Insurance (C) Committee ............................................. 9

Financial Condition (E) Committee .......... 9 Capital Adequacy (E) Task Force ............ 10 Investment RBC (E) Working Group........ 10 Group Capital Calculation (E)

Working Group.................................... 10 Group Solvency Issues (E)

Working Group.................................... 11 ORSA Implementation (E) Subgroup ...... 11 Receivership and Insolvency (E)

Task Force .......................................... 11 Reinsurance (E) Task Force .................... 11 Risk-Focused Surveillance (E)

Working Group.................................... 12 Valuation of Securities (E) Task Force .... 12

Financial Regulation Standards and Accreditation (F) Committee ............... 13

International Insurance Relations (G) Committee ........................................... 13

Appendix A — Statutory Accounting Principles Working Group .................... 14

Appendix B — Blanks Working Group ..... 19 Appendix C — Capital Adequacy Task Force.................................................... 20

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2 | NAIC Bulletin January 2017

Executive Committee and Plenary The Executive Committee and Plenary adopted amendments to the Long-Term Care Insurance Model Act (#640) and the Long-Term Care Insurance Model Regulation (#641) to update the disclosure and performance standards for long-term care insurance in response to the significantly large and/or multiple rate increases experienced by policyholders on their long-term care policies. Separately, the Executive Committee and Plenary adopted revisions to the NAIC Guidance Manual for Rating Aspect of the Long-Term Care Insurance Model Regulation, which is used to evaluate compliance with the requirements of the model regulation.

The Executive Committee and Plenary adopted amendments to the Life and Health Insurance Guaranty Association Model Act (#520) to clarify guaranty association coverage does not apply to factored structured settlement annuity benefits (i.e., structured settlement annuity benefits that have been sold to a third party by the original annuitant).

The Executive Committee and Plenary also adopted amendments to the Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts Model Regulation (#200) to update and align its content with the Synthetic Guaranteed Investment Contracts Model Regulation (#695).

The Executive and Plenary Committee adopted the Term and Universal Life Insurance Reserve Financing Model Regulation (i.e., XXX/AXXX Credit for Reinsurance Model Regulation), as well as revisions to Actuarial Guideline XLVIII — Actuarial Opinion and Memorandum Requirements for the Reinsurance of Policies Required to be Valued under Sections 6 and 7 of the NAIC Valuation of Life Insurance Policies Model Regulation (AG 48). Refer to the XXX/AXXX Reinsurance Framework section in this publication for more information.

The Executive Committee and Plenary also adopted revisions to:

• Actuarial Guideline XLVII — The Application of Company Experience in the Calculation of Claim Reserves Under the 2012 Group Long-Term Disability Valuation Table (AG 47), limiting its application if an insurer does not have a large enough number of group long-term disability (GLTD) claims to require the development of an experience study

• Actuarial Guideline XLVIX — The Application of the Life Illustrations Model Regulation to Policies with Indexed-based Interest (AG 49), making its provisions applicable to all in-force life insurance policies within its scope, regardless of the date the policy was sold

In addition, the Executive Committee and Plenary adopted revisions to the Review Team Guidelines and the Accreditation Review Process and Procedures to enhance the accreditation program and related guidance, effective 1 January 2017. The revisions shift the focus of the accreditation standards from compliance toward substance and quality of the work performed in the accreditation review process.

Cybersecurity (EX) Task Force The Task Force formed an ad hoc drafting group to continue its work on the revised draft of the Insurance Data Security Model Law. This group has focused on addressing the concerns raised in the following six key areas of the proposed model law: state uniformity and exclusivity, the potential to exempt licensees already subject to federal privacy regulations (i.e., the Health Insurance Portability and Accountability Act or the Gramm-Leach-Bliley Act) from certain of its provisions, the need to include a “harm trigger” in the definition of a data breach, the definition of personal information subject to the model law, scalability and suitability of information security requirements for smaller licensees and licensee oversight of third-party service providers. The drafting group plans to hold biweekly meetings until a compromise can be reached on the provisions of the proposed model law.

Principle-based reserving The revised Standard Valuation Law (#820) incorporates the various sections of the Valuation Manual (VM) that establish the minimum reserve and related requirements for principle-based reserving (PBR) for life products and variable annuities and the minimum reserve requirements for health insurance and credit life and disability insurance.

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The NAIC has continued addressing PBR implementation initiatives ahead of the implementation date (i.e., 1 January 2017, subject to a three-year transition period during which the application of a PBR methodology for life products is optional). Developments include the following:

• The Statutory Accounting Principles (E) Working Group (SAPWG) adopted revisions to Statement of Statutory Accounting Principles (SSAP) No. 54, Individual and Group Accident and Health Contracts, to reference the health reserving requirements in the Valuation Manual (Ref #2016-34). Currently, the applicable health reserving guidance in Appendix A and actuarial guidelines in Appendix C of the Accounting Practices & Procedures Manual (AP&P Manual) are referenced in the Valuation Manual. The adopted revisions also update Issue Paper 15X — Implementation of Principle-based Reserving.

• SAPWG revised the requirements in SSAP No. 54 for the recognition of a change in valuation basis (Ref #2016-34). The adopted revisions indicate that changing morbidity assumptions regarding the length of claim continuance based on regularly updated credible experience as required for products subject to AG 47 and Actuarial Guideline L — 2013 Individual Disability Income Valuation Table (AG 50) would not be considered a change in valuation basis. Other uses of regularly updated credible experience (i.e., continuing claim payments required for morbidity assumptions by Appendix A-010, Minimum Reserve Standards for Individual and Group Health Insurance Contracts) would also generally not be considered a change in valuation basis.

• The Financial Regulation Standards and Accreditation (F) Committee exposed the referral from the Life Actuarial (A) Task Force (LATF) to consider additional sections from Model #820 as significant elements for inclusion in Part A: Laws and Regulations — Liabilities and Reserves of the accreditation standards. Currently, only Section 3 (Actuarial Opinion of Reserves) and Section 4 (Computation of Minimum Standard) have been identified as significant elements of Model #820. The recommended revisions to the accreditation standards would become effective as of 1 January 2020 (i.e., after the three-year transition period is complete). Comments are due by 8 February 2017.

• LATF received an update from the American Council of Life Insurers (ACLI) on their PBR testing for term insurance. The testing plan intended to understand the relationship between the net premium reserve (NPR) and deterministic reserve calculated for level term insurance under VM-20 and the gross premium reserve calculated for these life products based on pricing assumptions. Testing was performed on the in-force business for 13 participating companies with the reserves calculated based on current product design. Based on the testing performed, ACLI indicated that the deterministic reserve appeared to be an appropriately suitable reserve to meet the regulatory standard for moderately adverse conditions. ACLI also indicated that no changes were being recommended to the NPR formula at this time.

• The PBR Review Procedures (EX) Subgroup completed its work with the Financial Analysis Handbook (E) Working Group (FAHWG) to reorganize and enhance the Financial Analysis Handbook by incorporating a risk-focused assessment for reserves. Separately, the Subgroup continued its discussions on potential revisions to the Financial Condition Examiners Handbook that will address the principle-based valuation of reserves.

PBR pilot project The PBR Review (EX) Working Group received an update from NAIC staff on the preliminary results of the PBR pilot project designed to help insurers and regulators prepare for the implementation of PBR for life products. The NAIC staff reported that 11 participating companies submitted their PBR (i.e., VM-20) calculations and related actuarial (i.e., VM-31) reports to their domiciliary state regulators for review. The review raised questions on how reinsurance cash flows were included in the reserve modeling, how the reserves should be reported gross and net of reinsurance and how credibility calculated at the aggregate level was applied to policy segments. These questions will be subject to further regulatory analysis to determine whether additional guidance is necessary. A final report is expected to be available by the end of January 2017.




Valuation Manual amendments LATF continued its work on amending the Valuation Manual included in Model #820 to clarify the minimum reserve and related requirements for life insurance, accident and health insurance and deposit-type contracts. LATF exposed the following amendments that, if adopted, would be effective for the 2018 version of the Valuation Manual:

• Amendments to VM-20, Requirements for Principle-Based Reserves for Life Products, to provide a one-month lag in the data used to update the quarterly investment spread tables and allow the tables to be available in advance of the valuation date

• Amendments to Actuarial Guideline XXXVIII, The Application of the Valuation of Life Insurance Policies Model Regulation (AG 38), to align AG 38’s requirements with the version of the Valuation Manual in effect on the valuation date

Separately, LATF adopted the required amendments to VM-20 to publish updated data for investment spreads as of 30 September 2016.

LATF also exposed the VM Q&A document prepared by its Valuation Manual review drafting group to provide responses to nine questions submitted by insurers and regulators. These responses are intended to clarify certain of the concepts addressed in the Valuation Manual, specifically with respect to the application of VM-20. Comments are due by 13 January 2016.

XXX/AXXX Reinsurance Framework With the adoption of the XXX/AXXX Credit for Reinsurance Model Regulation, the NAIC finalized its work on the XXX/AXXX Reinsurance Framework to address the regulation of term life (i.e., XXX) and universal life with secondary guarantees (i.e., AXXX) reserve financing transactions.

The model regulation does not materially change the ability of insurers to obtain credit for reinsurance ceded to “certified” reinsurers or to obtain credit for reinsurance ceded to “licensed” or “accredited” reinsurers that follow statutory accounting and risk-based capital (RBC) rules. Rather, the requirements of the model regulation apply to reinsurance ceded to captive insurers, special purpose vehicles, reinsurers that are not eligible to become “certified” reinsurers or reinsurers that materially deviate from statutory accounting and/or RBC rules. In those situations, the ceding insurer may receive credit for reinsurance if all of the following conditions are met:

• The ceding insurer establishes gross reserves, in full, using applicable reserving guidance (i.e., the current “formulaic” approach under Model #820 or PBR).

• Funds consisting of Primary Security, in an amount at least equal to the required level of Primary Security (as defined in the model regulation), are held by or on behalf of the ceding insurer as security under the reinsurance contract on a funds withheld, trust or modified coinsurance basis.

• Funds consisting of Other Security, in an amount at least equal to any portion of the statutory reserves as to which Primary Security is not held, are held by or on behalf of the ceding insurer as security under the reinsurance contract.

• At least one party to the financing transaction holds an appropriate level of RBC for the transaction.

• The reinsurance arrangement is approved by the domiciliary state regulator for the ceding insurer.

Separately, the Life Insurance and Annuities (A) Committee adopted revisions to AG 48 proposed by LATF to align its provisions with the requirements of the XXX/AXXX Credit for Reinsurance Model Regulation. These revisions are effective 1 January 2017.

The XXX/AXXX Credit for Reinsurance Model Regulation will ultimately supersede AG 48 once it is adopted by individual states. In addition, the model regulation and related 2016 revisions to the Credit for Reinsurance Model Law (#785) are expected to be considered for inclusion in the accreditation standards in a future period.




Accreditation standards The NAIC staff completed its review of the Supplemental XXX/AXXX Reinsurance Exhibit for compliance with the requirements of the Preamble to the Part A: Laws and Regulations accreditation standard related to captive reinsurers that assume XXX/AXXX business. Various errors were identified in the information reported for 2015, which resulted in either amended filings or instructions to preparers to prevent the errors going forward. In response, the NAIC staff will develop a “helpful hints” document to assist insurers in completing the exhibit and potentially suggest clarifying revisions to the Life annual statement blank and instructions that will be coordinated through the Blanks (E) Working Group (BWG) for year-end 2017 reporting.

Variable Annuity Framework The Variable Annuity Issues (E) Working Group (VAIWG) continued its work to identify potential changes in the NAIC statutory framework (i.e., statutory accounting, reserving and RBC requirements) for variable annuities intended to encourage strong risk management practices by insurers and eliminate the need to reinsure variable annuity business through captive reinsurance transactions.

Quantitative impact study VAIWG has held regular meetings to address the feedback received from regulators and interested parties on the 14 proposals from Oliver Wyman aimed at addressing the complexities in the NAIC statutory framework for variable annuities. The decisions reached by VAIWG in these discussions will form the basis for the 2017 Quantitative Impact Study (QIS) to be performed by Oliver Wyman, the objectives of which will include validating certain elements of the framework not tested in the 2016 QIS, assessing the aggregate effect of all of the proposed changes on the framework and obtaining a better understanding of the effect on areas of the framework in different market situations.

The 2017 QIS will be industry-funded, and any insurer with variable annuities can participate. However, participants will be required to pay their share of the QIS’ costs.

Effect on statutory accounting and reporting SAPWG adopted the following items referred by VAIWG:

• Revisions to SSAP No. 56, Separate Accounts, to remove the requirement to disclose total maximum guarantees for separate account products (Ref #2016-27), effective immediately

• Revisions to SSAP No. 61R, Life, Deposit-Type and Accident and Health Reinsurance, to update the variable annuity captive disclosure requirements for 2016 reporting and thereafter (Ref #2016-28), effective immediately, including a requirement for a reporting entity to identify and disclose any state prescribed or permitted practices that apply to the affiliated captive reinsurer in accordance with the guidance in SSAP No. 1, Accounting Policies, Risks & Uncertainties, and Other Disclosures

SAPWG also directed the NAIC staff to consider the feedback provided on the previously exposed issue paper on the special accounting treatment for limited derivatives hedging variable annuity guarantees (Ref #2016-03). This issue paper is meant to allow hedge accounting treatment for certain limited derivative contracts that otherwise would not meet the requisite requirements under SSAP No. 86, Derivatives. The NAIC staff will continue to work with key stakeholders on potential revisions to the draft guidance, with subsequent exposure anticipated to solicit additional feedback.

Separately, the BWG adopted VAIWG’s recommendation to create a new variable annuities supplement and remove a variable annuity interrogatory in the annual statement effective for 2017 reporting (Ref #2016-27BWG). The new supplement will provide regulators with a more meaningful disclosure of the liabilities associated with variable annuity guarantees.

Accounting Practices and Procedures (E) Task Force The Accounting Practices and Procedures (E) Task Force (AP&PTF) acknowledged that SAPWG intends to develop and send a referral detailing past discussions and exposures on the quarterly reporting of investment information for consideration in 2017. The referral will include a request for AP&PTF to make a policy change that facilitates the collection of second-quarter, electronic-only investment information (i.e., CUSIP, par, book/adjusted carrying value and fair value) for Schedule D investments.




Statutory Accounting Principles (E) Working Group Appendix A in this publication summarizes the actions taken by SAPWG to revise and/or clarify the requirements of statutory accounting and reporting guidance since the 2016 Summer National Meeting. Significant actions include:

• SAPWG adopted revisions to SSAP No. 2, Cash, Drafts, and Short-Term Investments, to require investments in money market mutual funds to be classified as cash equivalents and reported at fair value (Ref #2016-18 and Ref #2016-35). The revisions also provide a practical expedient that allows the use of net asset value (NAV) for estimating fair value. The revisions are effective 31 December 2017.

• SAPWG adopted revisions to SSAP No. 35R, Guaranty Fund and Other Assessments, to allow insurers to consider expected renewals of short-duration health contracts in determining the asset recognized from accrued guaranty fund liability assessments (Ref #2016-38). The revisions only apply when retrospective premium-based assessments are imposed on insurers that write short-duration health contracts for the insolvencies of insurers that wrote long-duration contracts (e.g., long-term care policies). The resulting asset can be recognized if it is probable that the accrued liability will be recovered in a future period from current in-force business, which is similar to the recognition criteria for life insurers that write long-duration contracts. The revisions are effective 1 January 2017.

• SAPWG adopted revisions to SSAP No. 86 to include a definition for the notional amount (Ref #2015-51) intended to eliminate the current diversity in practice. The revisions are effective 1 January 2017, but reporting entities that already determine the notional amount in accordance with the adopted definition should continue to follow that approach for year-end 2016.

• SAPWG adopted revisions to Appendix A-010 to incorporate the use of the 2013 individual disability income valuation table that reporting entities will be required to adopt on 1 January 2020, with early adoption allowed beginning on 1 January 2017 (Ref #2016-17). The requirements of Appendix A-010 are incorporated into SSAP No. 54.

• SAPWG adopted revisions to SSAP No. 3, Accounting Changes and Corrections of Errors, to clarify the guidance on the recognition of a correction of an accounting error (Ref #2015-46). The revisions, effective immediately, address the actions that must be taken when a reporting entity becomes aware of a material accounting error in previously issued financial statements. The revisions also clarify how accounting errors should be corrected if restated financial statements are not filed.

• SAPWG adopted revisions to SSAP No. 84, Health Care and Government Insured Plan Receivables, to clarify that receivables must originate from the government to be considered an admitted asset when they are over 90 days past due (Ref #2016-23). The revisions are effective immediately. SAPWG also elected to forego discussion on extending the admission period for performance rebate receivables from 90 days to 120 days.

• SAPWG adopted revisions to SSAP No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, to provide an exemption from NAIC filing requirements for non-admitted, zero-value and immaterial investments in subsidiary, controlled and affiliated entities (SCAs) and clarify the filing process (Ref #2016-37). The revisions, effective immediately, require a reporting entity to submit a SUB 1 form within 30 days of the acquisition or formation of an SCA investment but request an exemption from submitting a SUB 2 form on an annual basis for its qualifying SCA investments. In addition, any reporting entity that has not submitted a SUB 1 form for its historical SCA investments needs to file the form and can do so free of charge until 30 September 2017.

• SAPWG adopted revisions to the scope of the annual audit disclosure requirements in SSAP No. 2, SSAP No. 26, Bonds, and SSAP No. 43R, Loan-Backed and Structured Securities, for bond categories, maturity descriptions and proceeds from the sale of bonds (Ref #2016-24). Under the revised guidance, the disclosure requirement for proceeds from the sale of bonds also applies to assets receiving bond treatment (i.e., reported on Schedule D of the Annual Statement) with a separate presentation of gross realized gains and losses on such sales. The revisions are effective immediately.




SAPWG also solicited feedback on the following items:

• SAPWG exposed revisions to SSAP No. 43R that include the following: (1) a revised definition for investments in the scope of the SSAP No. 43R, (2) a change in title and reference to “structured finance securities” from loan-backed and structured securities, (3) a clarification of admitted asset requirements, (4) removal of prior transition guidance, and (5) an update to the Q&A Implementation Guide to remove outdated guidance (Ref #2016-39). The NAIC staff expects the revisions to result in some securities no longer being in the scope of SSAP No. 43R. Comments are due by 10 February 2017.

• SAPWG exposed a request for information on the current practices of allocating gains and losses between the asset valuation reserve (AVR) and interest maintenance reserve (IMR), as well as the recognition of other-than-temporary impairment (OTTI) and allocation of the related amount between AVR and IMR if the security is sold in the same reporting period in which the OTTI is first identified. Comments are due by 10 February 2017.

Blanks (E) Working Group Appendix B in this publication summarizes the actions taken by the BWG since the 2016 Summer National Meeting, including items adopted for 2017 reporting during an interim conference call on 15 December 2016.

Life Insurance and Annuities (A) Committee The A Committee adopted amendments to the Standard Nonforfeiture Law for Individual Deferred Annuities (#805) to limit the application of its provisions for contingent deferred annuities (CDAs). However, the amendments also provide the state insurance commissioner with the authority to prescribe by regulation nonforfeiture benefits for CDAs that are equitable to the policyholder, appropriate given the risks insured and consistent with the general intent of Model #805. It is expected that any regulation prescribing specific nonforfeiture requirements for CDAs would only apply to contracts issued after the effective date of such regulation.

The A Committee adopted revisions to AG 49, which provides uniform guidance to insurers for developing consumer illustrations of the maximum crediting and interest rates for policies with benefits that are tied to an external index. Previously, AG 49 was effective only for illustrations of new business sold. However, the revisions make the provisions of AG 49 applicable to all in-force life insurance policies within its scope, regardless of the date when the policy was sold.

The A Committee also adopted the 2017 Generally Recognized Expense Table (GRET) developed by the Society of Actuaries (SOA). The GRET is used in policy illustrations.

The A Committee received the report of the Model Law Review (A) Subgroup, which included the following recommendations for potential future consideration by the A Committee:

• Modified Guaranteed Annuity Model Regulation (#255) — Determine whether states have not adopted this model because the requirements are contained elsewhere in their laws and whether there is a need for the development of a similar model for modified guaranteed annuities offered through general accounts products

• Suitability in Annuity Transactions Model Regulation (#275) — Consider the modifications made by California to its state law, which are more consumer-friendly, for inclusion in Model #275

• Annuity Nonforfeiture Model Regulation (#806) — Determine whether the requirements of this model are contained elsewhere in state law or regulations and consider whether Model #806 may be more appropriate as an actuarial guideline

Life Actuarial (A) Task Force LATF received the report of the Longevity Risk (A/E) Subgroup, which continues working on providing recommendations for recognizing longevity risk in statutory reserves and/or RBC, as appropriate. The Subgroup has developed a method to measure longevity risk on the balance sheet and allocate a portion of the risk to asset adequacy testing (by capturing the reserve shortfall that has slowly accumulated over time from the use of locked in and outdated mortality tables) and the RBC C2 charge (by stressing the




mortality rates used in the calculation). The Subgroup indicated that insurers are already accounting for the accumulated longevity risk through either reserve strengthening or asset adequacy testing, and the implementation of this method would provide regulators with a prescribed and uniform standard for calculating longevity risk. The Subgroup will request that the American Academy of Actuaries (AAA) simplify the calculation by using a factor approach to be evaluated by the Subgroup before providing a final recommendation to LATF.

LATF also exposed a proposal from the VM-22 (A) Subgroup to modify the methodology for determining the maximum statutory valuation interest rates for income annuities. The proposal would be effective 1 January 2018. VM-22, Requirements for Principle-Based Reserves for Non-Variable Annuity Products, currently prescribes a valuation interest rate for sales of single premium income annuities (i.e., 4% for 2016). This proposal would establish a range of valuation interest rates developed to be responsive to liability duration and current market conditions at contract inception. The Subgroup expects the current range to be between 2% and 4%. Comments are due by 24 January 2017.

VM-22 (A) Subgroup The Subgroup recommended that LATF request the AAA to form a new group focused on modernizing the standard maximum valuation interest rates for all non-variable deferred annuities. LATF agreed to the recommendation. The ACLI suggested that their efforts should be coordinated with the work that is currently being done for variable annuities.

Unclaimed Life Insurance Benefits (A) Working Group The Working Group discussed the draft version of the Unclaimed Life Insurance and Annuities Model Act intended to establish a uniform process for life insurance companies to identify decreased insured individuals and perform meaningful searches for beneficiaries entitled to receive unclaimed life insurance (i.e., death) benefits. The provisions of the proposed model law were developed based on National Conference of Insurance Legislators (NCOIL) Model Unclaimed Life Insurance Benefits Act and the requirements in the regulatory settlements reached with a number of insurers. Concerns were raised on whether the proposed model in its current form would achieve the necessary votes to be adopted as an NAIC model given that 23 states have already enacted laws addressing unclaimed life insurance and annuity benefits with many of these laws based on the NCOIL model. The Working Group agreed to solicit additional feedback on the provisions of the proposed model for discussion and potential adoption of revisions on an interim conference call.

Health Insurance and Managed Care (B) Committee The B Committee adopted amendments to Model #640 and Model #641 that update their consumer disclosure provisions. The amendments were developed to address the large and multiple rate increases on policyholders, including those holding policies sold under the rate stabilization standards, which have occurred since the models were last updated.

The B Committee also adopted revisions to AG 47, which provides guidance to insurers when applying their own experience to the 2012 GLTD valuation table in the calculation of the GLTD claim reserves. The revisions limit the application of AG 47 if an insurer does not have enough GLTD claims to require the development of an experience study.

The B Committee approved a request from the Health Actuarial (B) Task Force (HATF) for an extension to develop revisions to the Health Insurance Reserves Model Regulation (#10). HATF will revise the model to include appropriate reserving standards for long-term care insurance.

The Senior Issues (B) Task Force reported to the B Committee that it had formed two new subgroups to address specific issues with long-term care insurance:

• The Long-Term Care Benefit Adjustment (B) Subgroup has been charged with determining the contractual authority required to make a benefit change to a long-term care policy, including changes that are made as an alternative to a rate revision.

• The Short-Duration Long-Term Care Policies (B) Subgroup has been charged with developing a model to address long-term care products that provide benefits for a term of less than one year and are excluded from regulation under the provisions of Model #640 and Model #641.




Health Actuarial (B) Task Force HATF adopted the final report from the AAA and the SOA on their development of the updated cancer claims cost tables, which will replace the 1985 cancer claim cost tables. The Cancer Claim Cost Tables (B) Subgroup has been charged by HATF with developing amendments to Model #10 to implement the use of the new tables.

Long-Term Care Actuarial (B) Working Group The Working Group discussed eight questions that regulators should consider when addressing requests for rate increases on long-term care policies. The Long-Term Care Pricing (B) Subgroup prepared the questions to help regulators understand the approaches taken by individual states to review and approve rate increases. A uniform review process will give regulators, insurers and policyholders a better sense of what can be expected regarding rate increases. The eight questions were exposed on 9 December 2016 for a 60-day comment period. Feedback provided by regulators and interested parties will be discussed by the Subgroup on future interim conference calls.

Property and Casualty Insurance (C) Committee The C Committee adopted the Principles for National Flood Insurance Program (NFIP) Reauthorization. The final principles will provide guidance to the NAIC to recommend potential reforms to the NFIP before the US Congress introduces legislation on reauthorization in 2017.

The C Committee adopted the 2016 Workers’ Compensation Large Deductible Study performed by the NAIC/IAIABC Joint (C) Working Group. The updated study is intended to be a resource for all parties affected by the large/mega-deductible landscape in the workers’ compensation market, including insurers, third-party administrators, professional employer organizations, guaranty fund associations and regulators on the use and potential risks of large deductible polices.

The C Committee also adopted the Insurance Implications of Home-Sharing: Regulator Insights and Consumer Awareness white paper to assist regulators and non-regulators in addressing the insurance implications of short-term rental applications.

The C Committee approved a third request to extend the deadline for revisions to the Creditor-Placed Insurance Model Act (#375). The Creditor-Placed Insurance Model Act Review (C) Working Group is currently reviewing Model #375 to determine whether it should be retained as a model law, amended, converted to a guideline or archived.

Financial Condition (E) Committee The E Committee exposed the NAIC staff’s proposal on Contingency Planning Regarding Consumer Protection Collateral. The proposal would consider various contingency plans that protect consumers and ceding insurance companies under the US system of state-based insurance regulation from the potential adverse effects of the covered agreement that the US Department of the Treasury and the Office of the US Trade Representative are negotiating with the European Union (EU).

The proposal would consist of one primary recommendation that combines many of the methods previously discussed into possible changes to the RBC formula for property and casualty (P&C) insurers, and then requests the P&C RBC (E) Working Group consider the details of the proposal more carefully. The following summarizes the recommended actions to be taken:

• Modifications to the various categories of reinsurers as reported within Schedule F and PR012A (information only) to allow different risk factors to be established for these categories

• Creation of new RBC pages (e.g., PR012B, PR012C, PR012D, PR012E) for each of the above categories with different RBC charges for each type of reinsurer, along with a total (PR012A) that combines each of the four categories

The proposal was only intended to demonstrate the overall intent of the recommendation, and the Working Group may determine that a different format is more appropriate to capture the effect on the RBC formula.




The E Committee approved another request from the Mortgage Guaranty Insurance (E) Working Group to extend the deadline for revisions to the Mortgage Guaranty Insurance Model Act (#630). The additional time is needed for the Working Group to fully test the actuarial aspects of the mortgage guaranty capital model and its RBC component developed to improve the solvency regulation of mortgage guaranty insurers.

Capital Adequacy (E) Task Force Appendix C in this publication summarizes the actions taken by the Capital Adequacy (E) Task Force and the various NAIC groups that report to it since the 2016 Summer National Meeting. These actions include:

• The Operational Risk (E) Subgroup proposed changes to each of the RBC formulas that would require an “add-on” charge for basic operational risk by applying a factor to the RBC calculated by the insurer (Ref# 2016-13-O). The proposal would provide for the use of a provisional 3% factor to establish the “add-on” charge until the Subgroup completes its work to determine the final factor.

• The Task Force proposed two options for changes to the treatment of money market mutual funds in the RBC calculation (Ref #2016-15-CA). Option 1 would eliminate the Exempt and All Other Money Market Mutual Fund line items from the applicable pages of the Life, Health and P&C RBC formulas. Option 2 would move the reporting of exempt money market mutual funds under cash equivalents. Neither option will be effective until adoption of the modification to Schedule E, Part 2 exposed by the BWG (Ref #2016-33BWG). Comments are due by 26 January 2017.

Investment RBC (E) Working Group The Investment RBC (E) Working Group (IRBC) continued its assessment of the RBC charges for investment risk in all of the RBC formulas. IRBC has focused on the structure of the Life RBC formula for investment risk and exposed structural changes (e.g., increasing the number of the bond designations from six to 20) to the Life RBC formula and instructions. IRBC also referred these structural changes to the Valuation of Securities (E) Task Force (VOSTF) to solicit feedback on the proposal. IRBC will determine the revisions to the related risk factors after the structural changes are finalized.

The AAA clarified the methodology used in its August 2015 report to support the proposed treatment of bonds in the Life RBC formula. The report had suggested increasing the granularity of the bond designations in the Life RBC formula and changing the bond risk factors assigned to each designation. The data used in the report was derived from a study performed by the AAA. Separately, the ACLI suggested alternative bond risk factors based on its own study. IRBC recommended that the AAA work with the ACLI to consider certain provisions of the ACLI’s model in AAA’s methodology.

IRBC also considered whether the structural changes in the Life RBC formula should also be applied to the Health and P&C RBC formulas. Regulators would like to achieve consistency across industries, with the goal to enact these changes in the Life RBC formula by year-end 2017. However, these changes could be delayed until year-end 2018 to address more asset types/classes and provide more time to evaluate their effect on the Health and P&C RBC formulas. Industry representatives will provide feedback on this consideration in early 2017.

Group Capital Calculation (E) Working Group The Working Group continued working on the development of a US group capital calculation. The Working Group received feedback on key questions about using the inventory method (i.e., identifying a specific charge for each company in the group) to determine group capital. While the Working Group made tentative decisions on the application of certain aspects of the inventory method, it indicated that such decisions would be revisited as the inherent limitations in the information available from the RBC calculation are addressed.

The Working Group tentatively decided that the scope of the calculation should be consistent with the requirements of the Insurance Holding Company System Regulatory Act (#440). This would result in all entities within the group being subject to the calculation.

For non-insurance affiliates in a group, the calculation will depend on whether the legal entities are already subject to a regulatory capital requirement (e.g., banks). The Working Group tentatively decided that the group capital charge for those legal entities would be equal to the existing level of capital required by their regulator. Other legal entities that are not already subject to capital requirements




would have a 22.5% flat charge applied to their book/adjusted carrying value. The Working Group considered this a simplified approach that would not require much additional data but acknowledged that it would not be risk-sensitive and could potentially penalize well-capitalized affiliates.

The Working Group exposed an NAIC staff memorandum to solicit feedback on two possible approaches for applying scalars (i.e., factors) to non-US insurance companies subject to regulatory requirements in their domiciliary jurisdiction: the relative ratio approach and the distance-to-intervention approach. The use of a scalar would convert the legal entity’s local capital requirements to a comparable US standard for use in the calculation. The relative ratio approach would be comparable to the current RBC calculated for US-domiciled insurance companies, while the distance-to-intervention approach would provide a measure of risk for the legal entity relative to its local capital requirements. Comments are due by 24 January 2017.

The Working Group also discussed a possible timeline for the development, testing and implementation of the US group capital calculation. It currently recommends the calculation to be finalized and adopted for filing with the NAIC using 2019 annual data.

Group Solvency Issues (E) Working Group The Working Group discussed feedback on the draft of the Form F guidance manual intended to assist insurers and regulators in maximizing the usefulness of the Enterprise Risk Report (i.e., Form F). The Working Group indicated that the manual should provide interpretive guidance, clarify terms and discuss what specific information regulators expect to see in insurers’ Form F filings. The manual should also clarify the differences in the information provided in the Own Risk and Solvency Assessment (ORSA) filings. The Working Group further indicated that the guidance should be as uniform as possible, with the potential for modification on a state-by-state basis. The Working Group directed the NAIC staff to recommend modifications to the draft guidance manual based on the feedback received for consideration at a future meeting.

The Working Group also received a referral from the National Treatment and Coordination (E) Working Group to review a “best practice” document on Acquisition of Control (i.e., Form A) filings. The Working Group plans to provide feedback by mid-January 2017.

ORSA Implementation (E) Subgroup The Subgroup adopted a “best practice” document aimed at promoting consistency among state insurance regulators in the sharing of information included in ORSA filings, which often apply to a number of large groups with domestic insurers in various states. The best practices are intended to preserve confidentiality while reducing redundant review efforts through the reliance on the lead state to perform the primary review and assessment of the information submitted.

Receivership and Insolvency (E) Task Force The Task Force and its Receivership Model Law (E) Working Group will evaluate the effect of long-term care insurer insolvencies on the guaranty associations and the requirement of the Life and Health Insurance Guaranty Association Model Act (#520). The Working Group has requested a list of implications and issues raised by long-term care insurer insolvencies and suggested resolutions by 31 January 2017 for review at a future meeting.

Reinsurance (E) Task Force The Task Force received a referral from the Reinsurance Financial Analysis (E) Working Group requesting that it consider reinsurance collateral ratings on a legal entity and group basis. The Working Group requested that the Task Force provide guidance on when the group rating of a certified reinsurer applicant may be used. The Working Group shared the following considerations with the Task Force:

• Approved rating organizations (e.g., Standard & Poor’s, Moody’s, Fitch, A.M. Best) have different parameters for group ratings.

• The Reinsurance Regulatory Modernization Framework Proposal, which was the basis for the 2011 revisions to the Credit for Reinsurance Model Regulation (#786), was only considered a proposal (and not final language) for further development of the requirements for state regulation of certified reinsurers. The apparent non-specificity of the proposal may have been intentional to allow regulators to develop criteria for determining the appropriate use of a group rating for reinsurance collateral purposes.




• The current language of Section 8B(4) of Model #786 may be open to different interpretations, potentially leading individual states to make separate determinations on the appropriate use of the group rating by each state. However, for purposes of passporting, it is important to establish a single definition of this term for use by the states.

The Task Force also sent a referral to the FAHWG requesting that it consider adding guidance to the Financial Analysis Handbook addressing the need for additional scrutiny by financial analysts during their review of security for grandfathered policies under the provisions of AG 48.

The Task Force received a status report from the Qualified Jurisdiction (E) Working Group on EU member state implementation of Solvency II and its potential effect on the Qualified Jurisdiction status of Germany, the UK, Ireland and France. The report indicated that if it is determined there has been a material change in circumstances in these jurisdictions resulting from the implementation of Solvency II, the Task Force should consider whether it is necessary to reevaluate their status as Qualified Jurisdictions. The Task Force also requested the Working Group to prepare another report recommending action to be taken by the NAIC (if any) with respect to each jurisdiction.

Risk-Focused Surveillance (E) Working Group After discussing feedback on the proposed revisions to the Financial Analysis Handbook aimed at promoting greater uniformity and consistency in the prioritization framework used by state insurance regulators, the Working Group decided to re-expose the proposed revisions. The Working Group is seeking feedback identifying possible enhancements to the individual priority definitions that would allow the definitions to be flexible in meeting the needs of all states. In addition, the Working Group is also soliciting feedback on an implementation timeline that will allow sufficient time for states to adjust their internal processes, without unnecessarily delaying progress towards uniformity and consistency.

Valuation of Securities (E) Task Force VOSTF adopted the report of the Reporting Exceptions Analysis (E) Working Group addressing the reporting exceptions in the NAIC Jumpstart Exception Report (i.e., the population of securities reported by insurance companies that possibly should have been filed with the Investment Analysis Office (IAO)). The Working Group provided its recommendations to address the different categories of securities with identified issues (e.g., international securities, US government securities, private letter ratings) in the listing of reporting anomalies. The recommendations include a variety of actions to be taken by the NAIC or by insurance companies.

VOSTF revised the Purposes & Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) as a result of recent actions by SAPWG, as follows:

• VOSTF adopted an amendment to delete the reporting instructions for money market mutual funds to correspond with the adopted clarifications to statutory accounting and reporting guidance.

• VOSTF exposed an amendment to transfer the SCA valuation rules from the P&P Manual to SSAP No. 97. The P&P Manual will retain the guidance for the filing requirements for SCA entities.

VOSTF also acted on several proposals to amend the P&P Manual, as follows:

• VOSTF adopted an amendment to include Belgian GAAP as a National Financial Presentation Standard, allowing insurers that have audited financial statements prepared on this basis of accounting to file securities with IAO without including a reconciliation to US GAAP or IFRS in the financial statements.

• VOSTF proposed deleting references to the Securities Valuation Office (SVO) Integrated Securities Information System and replacing them with VISION, the new computer platform used by the SVO as of September 2016.

• VOSTF deferred action on an SVO recommendation to clarify the definition and purpose of NAIC designations in the P&P Manual because it could disrupt the capital standard discussions between the NAIC and International Association of Insurance Supervisors (IAIS). The SVO’s initial report concluded that the use of the NAIC designation is clear in the P&P Manual; however, a user of the P&P Manual could conclude that NAIC designations are only associated with credit risk, due to certain language in the P&P Manual. This is not appropriate since the designation process is focused on the assessment of the quality of a security.




Financial Regulation Standards and Accreditation (F) Committee The F Committee adopted revisions to the Self-Evaluation Guide/Interim Annual Review Form (SEG/IAR) to align its content with the updated accreditation program and related guidance, effective 1 January 2017. The SEG/IAR is a document that state insurance departments complete on an annual basis to demonstrate compliance with accreditation standards in the interim period between full accreditation reviews. The revisions to the SEG/IAR focus the time spent by a state insurance department to complete the submission on those areas most beneficial to assessing a state’s ongoing compliance.

The Committee also adopted the recommendation of the Risk Retention Group (E) Task Force to revise the CPA audits standard in Part A: Laws and Regulations-Risk Retention Groups (RRGs) Organized as Captives of the general accreditation standards, effective 1 January 2017. The revisions address the overlap between the audit partner rotation requirements in the Annual Financial Reporting Model Regulation (#205) and the Model Risk Retention Act (#705) and provide guidance on how to apply each standard for accreditation purposes. In addition, the revisions eliminate outdated references to the governance standards for RRGs included in the CPA audits standard.

International Insurance Relations (G) Committee The G Committee continued to discuss the activities of the International Association of Insurance Supervisors (IAIS) and their potential effect on the US system of state-based insurance regulation. Specific updates were provided on the work of the IAIS in the following areas:

• Standard-setting activities — The IAIS addressed the requirements and guidance currently established in certain IAIS Insurance Core Principles (ICPs). ICPs are globally accepted requirements for the supervision of the insurance sector. The IAIS decided that additional time is needed to incorporate the ICPs into the IAIS Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) specific to governance, supervisory process and resolution.

• Financial stability — The IAIS completed its assessment to determine globally systemically important insurers (G-SIIs) for 2017. Nine insurance groups have been designated as G-SIIs, of which three are domiciled in the US. There was no change in the US-domiciled insurance groups identified as G-SIIs from the prior year. The IAIS has also committed to greater transparency in its G-SIIs assessment process to allow for an “exit ramp” from the designation.

• Implementation — The IAIS will perform self-assessments and other review activities in 2017 that address ICP compliance when implementing standards and frameworks for regulatory supervision.

• Stakeholder engagement — The IAIS continues to solicit feedback on ways to improve its procedures for providing the appropriate level of transparency, communication and the ability for stakeholder engagement.

The Committee also provided an update on IAIS activities related to Version 1.0 of the risk-based global insurance capital standard (ICS), which is expected to be released in June 2017. The Committee submitted comments on the IAIS Insurance Capital Standard consultation document on behalf of the NAIC and reported that the IAIS will review all feedback provided on the ICS prior to its release. Valuation and qualifying (i.e., capital) resources will be addressed first because those are most critical to Version 1.0 of the ICS. The IAIS will attempt to reconcile the market-adjusted valuation approach and the GAAP-plus-adjustments approach to get to a single valuation method. As part of this process, it will determine qualifying Tier 1 and Tier 2 capital resources. The IAIS will also perform field testing on insurance groups that account for about 30% of global premiums in the first half of 2017, including assessing compliance with the basic capital requirement of the ICS.

Stay tuned The 2017 Spring National Meeting is scheduled for 8–11 April 2017 in Denver. Conference calls or other meetings will be held before then. A list of meetings can be found at http://naic.org/meetings_calendar.htm.

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Appendix A — Statutory Accounting Principles Working Group This chart summarizes actions taken by the SAPWG at the Fall National Meeting and in interim conference calls since the 2016 Summer National Meeting. Comments on exposed items are due by 10 February 2017, unless otherwise noted. More information is available at http://www.naic.org/cmte_e_app_sapwg.htm.

Topic/issue Status Discussion Effective date Substantive listing1 SSAP No. 51 — Principle-Based Reserving SSAP (Ref #2015-47)

Exposed* Exposed an issue paper to document the substantive revisions to SSAP No. 51, Life Contracts, and other changes to facilitate the implementation of PBR.

TBD

SSAP No. 22 — Leases (Ref #2016-02)

Further analysis necessary*

Directed the NAIC staff to prepare a draft issue paper on Accounting Standards Update (ASU) ASU 2016-02, Leases. The existing statutory accounting treatment for leases will be retained at this time, with targeted improvements to be considered for the guidance on sale leaseback and leverage lease transactions.

TBD

SSAP No. 86 — Derivatives Variable Annuities (Ref #2016-03)

Exposed* Exposed an issue paper on concepts for a “special accounting provision” to consider hedge accounting treatment for limited derivatives hedging guarantees on variable annuity products that do not meet hedge effectiveness requirements in SSAP No. 86 for inclusion in a new SSAP.

TBD

SSAP No. 2 — Classification of Money Market Mutual Funds as Cash Equivalents (Ref #2016-18)

Adopted Adopted revisions to SSAP No. 2 to reclassify investments in money market mutual funds from short-term investments to cash equivalents.

31 December 2017

ASU 2016-13: Credit Losses (Ref #2016-20)

Deferred Deferred discussing the consideration of ASU 2016-13, Financial Instruments — Credit Losses, for statutory accounting purposes until the second half of 2017, because the Financial Accounting Standards Board may address issues related to the initial application of the standard for US GAAP purposes.

TBD

SSAP No. 2 — Measurement Method for Money Market Mutual Funds (Ref #2016-35)

Adopted Adopted revisions to require money market mutual funds to be reported at fair value and provide a practical expedient to use NAV for estimating fair value, with any unrealized gains and losses accounted for in accordance with SSAP No. 7, Asset Valuation Reserve and Interest Maintenance Reserve (for AVR filers) or recorded as a direct credit or charge to surplus (for non-AVR filers).

31 December 2017

SSAP No. 35R —Guaranty Fund Credits for Short Duration Contracts (Ref #2016-38)

Adopted Adopted limited revisions to SSAP No. 35R to allow the expected renewal of short-duration health contracts to be considered in determining the asset recognized from accrued guaranty fund liability assessments (similar to the recognition criteria for insurers that write long-duration contracts). The revisions only apply when retrospective premium-based assessments are imposed on insurers that write short-duration health contracts for the insolvencies of insurers that wrote long-duration contracts (e.g., long-term care policies).

1 January 2017

SSAP No. 43R —Definition of LBSS (Ref #2016-40)

Exposed Exposed revisions to SSAP No. 43R that include (1) a revised definition for investments in the scope of the SSAP No. 43R , (2) a change in title and reference to “structured finance securities,” (3) the clarification of admitted asset requirements, (4) removal of prior transition guidance, and (5) an update to the Q&A Implementation Guide.

TBD

SSAP No. 26 — AVR and IMR in SSAP No. 26 (Ref #2016-41)

Exposed Exposed a request to regulators and industry for information on the current practices of allocating gains and losses between AVR and IMR, as well as information on the recognition of OTTI (and allocation of the related amount between AVR and IMR) if the security is sold in the same reporting period in which the OTTI is first identified.

TBD

1 Substantive revisions are those that modify the statutory intent of an SSAP or create new statutory accounting principles. 2 Nonsubstantive revisions are those that do not modify the statutory intent of an SSAP.


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Topic/issue Status Discussion Effective date

Nonsubstantive listing2 SSAP No. 84 — Pharmacy Rebates under Medicare Part D Gap Discount (Ref #2011-44)

Disposed Elected to forego further consideration on the potential to extend the admission period for pharmaceutical rebate receivables from 90 days to 120 days as currently required by SSAP No. 84.

Immediately

SSAP No. 26 — Investment Classification Review (Ref #2013-36)

Further analysis necessary/ Exposed*

Directed the NAIC staff to prepare an issue paper for bond-approved exchange-traded funds and bond mutual funds in scope of SSAP No. 26 to require measurement at fair value and provide a practical expedient to use NAV for estimating fair value, unless the reporting entity elects to use an approved documented “systematic value” approach. Exposed BlackRock’s suggested systematic value calculation for comment.

TBD

SSAP No. 16R — ASU 2015-05: Fees Paid in a Cloud Computing Arrangement (Ref #2015-15)

Adopted Adopted revisions to SSAP No. 16R, Electronic Data Processing Equipment and Software, to clarify that entities that license internal-use computer software are required to follow the statutory accounting guidance for leases in SSAP No. 22.

Immediately

SSAP No. 26 and SSAP No. 43R — Measurement Method for NAIC 5 Designations (Ref #2015-17)

Deferred* Deferred revisions that would require investments held by an AVR filer designated as an NAIC 5 to be reported at the lower of amortized cost or fair value until the work performed for Ref # 2015-41 on NAIC 5* securities is complete.

TBD

SSAP No. 86 Appendix D — FAS 133 EITFs (Ref #2015-22)


Directed the NAIC staff to note specified Financial Accounting Standard (FAS) 133 Emerging Issues Task Force issuances as pending in Appendix D and to prepare subsequent agenda items for review and consideration.

TBD

Quarterly Reporting of Investment Schedules (Ref #2015-27)

Referred Elected to develop and send a referral to the Accounting Practices & Procedures Task Force in 2017 to consider a policy change that facilitates collection of an electronic-only submission of Schedule D investment data, with information detailing CUSIP, par value, book/adjusted carrying value and fair value, on an interim basis (second quarter only).

TBD

Aging and Revenue Recognition of Multi-Peril Crop Policies (Ref #2015-33)


Directed the NAIC staff to work with interested parties, regulators and key stakeholders to develop recommendations for updating SSAP No. 78, Multiple Peril Crop Insurance, regarding (1) the use of the billing date for application of the 90-day rule, (2) defining the processing date or updating the term, (3) providing more specificity on the period of risk for purposes of earning revenue and (4) developing a glossary of terms.

TBD

ASU 2015-09: Financial Services — Insurance, Disclosures about Short-Duration Contracts (Ref #2015-37)

Deferred* Deferred consideration of the requirements of ASU 2015-09, Financial Services — Insurance, Disclosures about Short-Duration Contracts, since the industry has formed a group to review the applicability of the ASU for statutory accounting. SAPWG is waiting for the industry to submit comments on the US GAAP disclosures for short-duration insurance contracts before proceeding.

TBD

SSAP No. 3 — Correction of an Error in SSAP No. 3 (Ref #2015-46)

Adopted Adopted revisions to SSAP No. 3 to clarify that the existing guidance pertains to the correction of accounting errors. The changes also address the actions to be taken when the reporting entity becomes aware of a material accounting error in previously issued financial statements and how accounting errors should be corrected if a restated financial statement is not filed.

Immediately

SSAP No. 86 — Definition of a Notional (Ref #2015-51)

Adopted Adopted revisions to SSAP No. 86 to incorporate a definition for the notional amount.

1 January 2017




Topic/issue Status Discussion Effective date Nonsubstantive listing2 (continued) Appendix F — Policy Statement Coordination with P&P Manual, SVO and VOSTF (Ref #2016-13)

Exposed* Exposed and identified the lack of formal guidance that outlines the coordination and collaboration among (1) the AP&P Manual and P&P Manual, (2) the VOSTF and SAPWG and (3) the VOSTF and SAPWG support staff. Revisions include a new policy statement detailing coordination with the P&P Manual and the VOSTF.

TBD

SSAP No. 103R — Repurchase & Reverse Repurchase Disclosures (Ref #2016-16)

Adopted Adopted revisions to SSAP No. 103, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to incorporate enhanced disclosure requirements for repurchase agreements. Additionally, the revisions reorganize some of the existing disclosure elements in SSAP No. 103 to collectively group “repo” disclosures together within the SSAP.

31 December 2017

Appendix A-010 — 2013 Individual Disability Income Valuation Table (Ref #2016-17)

Adopted Adopted revisions to Appendix A-010 to incorporate the changes made to the related NAIC model regulation (#10) relevant to the 2013 individual disability income valuation table. Early adoption of the valuation table is allowed beginning 1 January 2017.

1 January 2020

SSAP No. 97 — Market Value Approach for SCA Entities (Ref #2016-21)

Adopted Adopted updates to SSAP No. 97 to reference the identified exchanges allowed under the market valuation method. Paragraph 8.a. now identifies the New York Stock Exchange, the NASDAQ and the Japan Exchange Group as allowed exchanges.

Immediately

SSAP No. 97 — SCA Foreign Language Support (Ref #2016-22)

Adopted Adopted revisions to SSAP No. 97 to clarify that documentation supporting investments in foreign SCA entities is to be provided in English and that investments in SCA filings are reviewed by the SCA team not the SVO.

Immediately

SSAP No. 84 — Receivables of Government Plans (Ref #2016-23)

Adopted Adopted revisions to SSAP No. 84 to clarify that receivables must originate from the government in order to be past 90 days due and remain an admitted asset.

Immediately

Clarification of Investment Proceeds Disclosure (Ref #2016-24)

Adopted Adopted revisions to SSAP No. 2, SSAP No. 26 and SSAP No. 43R to clarify the items within the scope of the annual audited disclosure requirements on bond categories, bond maturity distributions and proceeds from sales of bonds.

Immediately

SSAP No. 23 — Amendment to Revisions of Ref #2015-24 (Ref #2016-25)

Adopted Adopted revisions to SSAP No. 23, Foreign Currency Transaction and Translations, to clarify the statutory accounting treatment for the translation of Canadian insurance operations.

Immediately

SSAP No. 23 — Foreign Currency Matters (Ref #2016-26)

Adopted Adopted revisions to SSAP No. 23 to incorporate, with modification, the requirements of ASU 2013-05, Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The revisions provide guidance on when a parent reporting entity has to realize foreign currency translation changes in an investment of a foreign entity.

Immediately

SSAP No. 56 — Variable Annuity Disclosure Removal from SSAP No. 56 (Ref #2016-27)

Adopted Adopted revisions to SSAP No. 56 to remove the disclosure of total maximum guarantees for separate account products.

Immediately

SSAP No. 61R — Updates to Variable Annuity Captive Disclosure (Ref #2016-28)

Adopted Adopted revisions to SSAP No. 61R to update the variable annuities captive disclosure requirements for 2016 reporting and thereafter.

Immediately




Topic/issue Status Discussion Effective date

Nonsubstantive listing2 (continued) SSAP No. 86 — ASU 2016-05: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (Ref #2016-29)

Adopted Adopted revisions to SSAP No. 86 to include with modification the requirements of ASU 2016-05, Effective of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument does not, by itself, result in a termination of the derivative instrument.

Immediately

SSAP No. 54 — Health Valuation Manual Updates (Ref #2016-34)

Adopted Adopted revisions to SSAP No. 54, Individual and Group Accident and Health Contracts, to incorporate references to the Valuation Manual, as well as updates to Issue Paper 15X — Implementation of Principle-based Reserving, which summarizes all the changes made to statutory accounting guidance for the implementation of PBR.

1 January 2017

Revisions to Appendix A-200 (Ref #2016-36)

Adopted Adopted revisions to Appendix A-200, Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts, to incorporate the changes made to the related NAIC model regulation (#200).

1 January 2017

SSAP No. 97 — Exclusion of Non-Admitted and Immaterial SCAs from Filing Guidance (Ref #2016-37)

Adopted Adopted revisions to SSAP No. 97 to provide filing guidance for non-admitted, zero-value and immaterial SCAs, along with clarification on the NAIC filing process for SUB-1 and SUB-2 forms.

Immediately

SSAP No. 37 — Mortgage Loan with Multiple Lenders (Ref #2016-39)

Exposed Exposed revisions to SSAP No. 37, Mortgage Loans, to clarify that a reporting entity that provides a mortgage loan as a “participant in a mortgage loan agreement” would consider the mortgage loan in the scope of SSAP No. 37.

TBD

Appendix C Introduction (Ref #2016-42)

Exposed Exposed revisions to the introduction page of Appendix C — Actuarial Guidelines in the AP&P Manual to promote consistent application of the Actuarial Guidelines. The proposed revisions add language noting that various SSAPs incorporate the Actuarial Guidelines by reference into the accounting standard and provide information regarding their applicability after the operative date of the Valuation Manual.

TBD

INT 01-25 Inflation-Indexed Securities (Ref #2016- 43)

Exposed Exposed revisions to INT 01-25: Accounting for US Treasury Inflation-Indexed Securities to restrict foreign inflation-indexed securities from using the guidance in INT 01-25 and require the security to follow the applicable SSAP (e.g., SSAP No. 26) without recognition of unrealized gains or losses based on the inflation factor.

TBD

Revisions to Appendix A-791 (Ref #2016-44)

Exposed Exposed revisions to Appendix A-791, Life and Health Reinsurance Agreements to add the guidance in Section 5(C) of the related NAIC model regulation (#791).

TBD

SSAP No. 101 — ASU 2016-16: Intra-Entity Transfers of Assets Other than Inventory (Ref #2016-45)

Exposed Exposed revisions to SSAP No. 101, Income Taxes, to adopt, with modification, the requirements of ASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory.

TBD

SSAP No. 69 — ASU 2016-15: Classification of Certain Cash Receipts and Cash Payments (Ref #2016-46)

Exposed Exposed revisions to SSAP No. 69, Statement of Cash Flow, to adopt the requirements of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The revisions are intended to improve consistency in statutory reporting, as well as minimize differences between statutory and US GAAP for cash flow classifications.

TBD

SSAP No. 48 and SSAP No. 97 — ASU 2016-07: Simplifying the Transition to the Equity Method of Accounting (Ref #2016-47)

Exposed Exposed revisions to SSAP No. 30, Unaffiliated Common Stock, SSAP No. 48, Joint Ventures, Partnerships and Limited Liability Companies, and SSAP No. 97 to adopt the requirements of ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, with modifications to eliminate the requirement to adjust the reported amount of the investment, results of operations and retained earnings retroactively when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence.

TBD

* No additional action was taken on this topic/issue since the 2016 Summer National Meeting.




Issues rejected as not applicable to statutory accounting

• ASU 2016-03, Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (Ref #2016-30)

• ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products (Ref #2016-31)

• ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (Ref #2016-32)

• ASU 2016-11, Rescission of SEC Guidance (Ref #2016-33)




Appendix B — Blanks Working Group This chart summarizes actions taken by the BWG since the 2016 Summer National Meeting. Comments on exposed items are due by 8 March 2017. Details of current proposals can be found at http://www.naic.org/cmte_e_app_blanks.htm.

Adopted items Frequency Effective date 2016-23BWG: Added a new supplement for reporting reserve balances established for life products based on the PBR methodology pursuant to VM-20. Updates include modifications to existing annual statement blanks and instructions to correspond with the new supplement.

Annual Annual 2017

2016-27BWG: Added a new supplement to provide more meaningful information about variable annuities and the valuation of guaranteed liabilities. Corresponding changes were made to remove general interrogatories related to variable annuity guarantees.

Annual & Quarterly Annual 2017

2016-28BWG: Added a new question to the annual and quarterly general interrogatories regarding self-designed 5*GI securities. This change implements the requirement for insurers to certify within the general interrogatories whether these investments comply with the requirements of the P&P Manual (instead of the existing process that requires insurers to file individual investment certifications with the NAIC SVO).


Exposed items Frequency Effective date 2016-29BWG: Adds instructions for the identification of the life insurance policy locator (LIPL) contact in the electronic-only section of the Jurat page. The LIPL contact is intended to be the reporting entity’s representative who is able to address issues related to lost or forgotten life insurance and annuity policies. This contact may be different than the policyowner relations contact.


2016-30BWG: Modifies instructions for the Long-Term Care Insurance Experience Reporting Form 5 to indicate that a Grand Total page should be filed. The modified instructions will also provide certain crosschecks for the information reported in the Form 5.

Annual Annual 2017

2016-31BWG: Reduces the number of collateral type categories from 21 to 10 on Schedule D, Part 1. The exposed changes will combine several of the existing categories that have similar characteristics and risks and provide additional explanations and examples to assist preparers when determining the appropriate collateral type.

Annual Annual 2017

2016-32BWG: Reorganizes the information reported in the supplement for Cybersecurity and Identify Theft Insurance Coverage. Other revisions include: adding additional interrogatories to better indicate if a company writes certain types of cybersecurity and identity theft business, clarifying who should be completing the supplement and providing additional claims data (i.e., open, closed with payment and closed without payment).

Annual Annual 2017

2016-33BWG: Modifies the instructions and blank pages for the change in classification of money market mutual funds from short-term investments to cash equivalents. Corresponds with the revisions to statutory accounting guidance adopted by SAPWG (Ref #2016-18).


2016-34BWG: Modifies the instructions and blank pages to clarify the reporting of financial statement components for pension and other postretirement benefit plans including prepaid benefit costs, overfunded plan assets, accrued benefit costs and the liability for pension benefits.

Annual Annual 2017

2016-35BWG: Modifies Schedule F to implement the new RBC methodology for the Reinsurance Credit Risk charge that was adopted by the Capital Adequacy (E) Task Force. These modifications are intended to eliminate duplication, promote consistency of reporting, support automation and reduce filing errors.

Annual Annual 2018


http://www.naic.org/cmte_e_app_blanks.htm



Appendix C — Capital Adequacy Task Force This chart summarizes actions taken by the Capital Adequacy (E) Task Force and the various NAIC groups that report to the Task Force since the 2016 Summer National Meeting.

Topic/issue NAIC Group Status Discussion Effective date All RBC Basic Operational Risk Structural Changes (Ref #2016-13-O)

Operational Risk (E) Subgroup

Exposed Exposed changes to each of the RBC formulas to include an “add-on” charge for basic operational risk. The proposal would provide for the use of a provisional 3% factor to establish the “add-on” charge until the final factor is determined by the Subgroup.

2017

Reclassification of Money Market Mutual Funds (Ref #2016-15-CA)

Capital Adequacy (E) Task Force

Exposed Exposed two options for changes to the RBC treatment of money market mutual funds to align with the revised classification of these assets as cash equivalents adopted by SAPWG (Ref #2016-18).

2017

Health RBC Excessive Growth Charge for Start-Up Companies (Ref #2014-28-H)


Adopted Adopted modifications to the Business Risk XR012 page of the Health RBC formula and instructions for determining the Excessive Growth Risk charge to indicate that a start-up company may use first-year projections upon approval from its domiciliary state.

2017

Medicaid Pass-Through Payments (Ref #2015-27-H)

Health RBC (E) Working Group

Adopted Adopted guidance that allows Medicaid pass-through payments that qualify as subcapitated payments to be included under Category 3 — Capitations for a Managed Care Credit. This was initially adopted as a temporary correction for 2015 reporting that was extended to 2016 reporting (during the 2016 Summer National Meeting) and 2017 reporting (during the 2016 Fall National meeting). The Health RBC (E) Working Group will continue to discuss the RBC treatment of these payments for 2018 reporting.

2015

Medicare Part D Factors (Ref #2016-16-CA)


Exposed Exposed an update to the supplemental benefits within stand-alone Medicare Part D coverage line to clarify it is intended to capture claims incurred (and not premiums). The update would also increase the factor to 0.500.

2017

Stop Loss Factors (Ref #2016-17-CA)


Exposed Exposed a report prepared by AAA on the stop loss factors used in each of the RBC formulas, along with their recommendation to incorporate a tiered factor approach to developing the RBC charge for stop loss premiums. This approach would apply a factor of 35% to the first $25 million of stop loss premium and a factor of 25% to the remaining premium in excess of $25 million.

2017

Property/Casualty RBC Investment Affiliates (Ref #2014-29-P)


Adopted Adopted changes to simplify the Investment Affiliates charge (affiliate Type 7) in the P&C RBC formula as a fixed factor times the carrying value of affiliate common stock, preferred stock and bonds.

2017

Earthquake Model Losses (Ref #2015-22-CR)


Rejected Rejected revisions to the P&C RBC formula and instructions to calculate the earthquake risk charge by applying the worst year in 250 standard (e.g., 1-in-250-year event for earthquake). These revisions were initially proposed by the Catastrophe Risk (E) Subgroup.

N/A

Catastrophe Risk Charge (Ref #2016-07-CR)

Catastrophe Risk (E) Subgroup

Exposed Exposed changes to implement the Catastrophe Risk charge (Rcat) in the P&C RBC formula.

2017

PR027 Interrogatories (Ref #2016-11-CR)


Adopted Adopted modifications to the PR027 interrogatory to separate earthquake and hurricane exposures into two sections. Insurers must complete the interrogatory if the RBC charge for either earthquake or hurricane is zero.

2017




Topic/issue NAIC Group Status Discussion Effective date Property/Casualty RBC (continued) Internal Catastrophe Models (Ref #2016-12-CR)

Catastrophe Risk (E) Subgroup

Exposed Exposed changes to allow approved internal catastrophe models (instead of only the five approved commercially available models) as the basis for calculating the Catastrophe Risk charge (Rcat) in the PR027 page of the P&C RBC formula. The use of an internal catastrophe model would need to be approved by the insurer’s group supervisor.

2017

Underwriting Risk Line 4 Factors (Ref #2016-14-P)

P&C RBC (E) Working Group

Exposed Exposed a report prepared by AAA on the underwriting factors used in the P&C RBC formula. The report includes the AAA recommendation for revising the methodology used to determine the “reserve risk factor” and “premium risk factor” in line 4 of the PR016 and PR017 pages and establish the related underwriting risk charges.

2017

2016 Catastrophe Event List (Ref #2016-18-CR)


Adopted Adopted the 2016 catastrophe events list for use in reporting catastrophe data in the PR037 and PR100+ pages of the P&C RBC formula.

2016

Temporary Guidance for Recoverables (Ref #2016-19-P)


Exposed Exposed temporary guidance for the 2016 and 2017 R3 charges in Schedule F, Part 3. The exposed guidance would assist reporting entities that are unable to identify the equivalent rating of reinsurers with less than $100,000 recoverable included in an aggregated line.

2016

PR012A (Ref #2017-10-P)


Exposed Exposed changes to the PR012A page of the P&C RBC formula and instructions that correspond to the modifications to Schedule F, Part 3 exposed by the BWG (Ref 2016-35BWG).

2017


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