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2014PAMIC Presentation
Annual Statement and Statutory Accounting Update
SpeakerScott Esworthy, Principal, BSSF
Agenda
Adopted Reporting Changes• 2014 Annual Statement• 2014 Instructions• 2014 Supplements
Adopted Reporting Changes • 2015 Quarterly Statement
Accounting Changes Effective 2014 Other Items to Monitor
Changes to Accounting and Disclosures of FHLB Transactions (Ref #
2013-27)
Summary of Issue:• Non-substantive change which adopts revisions to numerous SSAPs to
improve the reporting and disclosure for Federal Home Loan Bank (FHLB) transactions (SSAP No. 1, Disclosure of Accounting Policies, Risks & Uncertainties and Other Disclosures; SSAP No. 15, Debt and Holding Company Obligations; SSAP No. 30, Investments in Common Stock (excluding investments in common stock of subsidiary, controlled or affiliated entities; SSAP No. 52, Deposit-Type Contracts
Discussion of Change:• SSAP 1 disclosures (general and separate accounts individually)
• Assets pledged to others or restricted compared to total assets and total admitted assets (FHLB capital stock, collateral pledged to the FHLB)
Changes to Accounting and Disclosures of FHLB Transactions (Ref # 2013-27)
Discussion of Change (Continued):• SSAP 1 disclosures (general and separate accounts individually)
• FHLB capital stock is considered restricted until actual redemption • Par is considered fair value, unless considered other than temporarily
impaired • Collateral pledged to the FHLB is considered restricted • Collateral pledged to the FHLB is considered an admitted asset, if
certain conditions exist • Enhanced disclosures (general and separate accounts individually)
• SSAP 15 and 52• For FHLB contracts accounted for under the applicable SSAP, disclosures are required
under that SSAP, as well as SSAP 30
• Investment schedules/Annual Statement instructions changes
Note 11B – Debt - FHLB
Description of agreement Data-captured tables designed to disclose• Amount of capital stock owned by class• Stock eligible for redemption• Collateral pledged• Aggregate amount of borrowings• Maximum aggregate amount of borrowings• Are current borrowings subject to prepayment
penalties
General Interrogatories - FHLB
Addition of FHLB capital stock and FHLB collateral to General Interrogatory 25.2
SSAP No. 105, Working Capital FinanceInvestments (Ref # 2013-10)
Summary of Issue:• Substantive change which creates a new SSAP for Working Capital
Finance Investments (WCFIs), allowing admitted asset treatment if certain conditions are met certain conditions are met
• January 1, 2014 effective dateDiscussion of Change:• WCFIs represent interests in short-term trade receivables that
insurers can purchase through a finance agent• Treated as admitted assets with accounting similar to short-term
investments, if approved by the SVO and rated NAIC 1 or 2• Insurer must submit annual filing to the SVO including audited
financials of the finance agent
Note 5I – Investments - WCFI
Working Capital Finance Investments (5I)• Disclosure in the aggregate by NAIC designation• Gross assets• Non-admitted asset amounts• Net admitted asset amounts
• Aggregate maturity distribution• Defaults during reporting period• From adoption of SSAP 105
Notes to Financials
Offsetting and netting of assets and liabilities• Reconciliation of offsetting and netting on balance sheet• Moving from current location in Note 21 to Note 5
SSAP No. 26, Bonds, Excluding Loan-backed andStructured Securities and SSAP No. 43R, Loan-backedand Structured Securities (Ref # 2014-02)
Summary of Issue:• Non-substantive change to create new disclosures for Structured
NotesDiscussion of Change:• Structured Notes are issuer obligations with payments linked to an
underlying pool of securities or an index, including new generation of mortgage backed securities issued by Fannie Mae and Freddie Mac
• NAIC modified SVO process in 2013 requiring these securities to be modeled for RBC, previously they could be classified as filing exempt
Note 5 – Structured Notes
Add disclosure for Structured Notes to Note 5.
CUSIP Identification Actual Cost Fair Value
Book/Adjusted Carrying Value
Mortgage-Referenced
Security(Y/N)
Total XXX
Relocation of Note
Note to Financials• The disclosure for Joint & Several Liabilities was moved
from Note 21 to Note 14
PC State Page
Property/Casualty• Add new line (2.4) to state page for Private Crop• Also added to IEE – Parts II and III
Reinsurance Schedules
Reinsurance Schedules (Schedules F or S)• Instructional clarification of NAIC Company Code,
Alien Insurer Identification Number (AIIN), Pool/Association Number and Certified Reinsurer Number (CRIN)• Which entities are assigned which numbers• Contact information for obtaining numbers
Schedule Y (Organization Chart) – Parts 1A and 2 Columnar heading change• Federal ID Number now ID Number• Enter appropriate identification number• Federal Employers Identification Number (FEIN)• Alien Insurer Identification Number (AIIN)• Certified Reinsurer Identification (CRIN)
Investment Schedules – Electronic pages Investment Schedules
• Add postal code electronic column to Schedules A, B and BA• For real estate and real estate collateralizing mortgage loans
• Add property type electronic column to Schedule A, B and BA• Codes will be provided
• Add maturity date electronic column to Schedules B and BA• Change state column to accept 3-character country code• The purpose of the proposal is to provide regulators with basic
information to better determine risk profiles. This includes potential concentrations and also the ability to address differing volatility based on property and geography.
Supplements
Property/Casualty and Title• Actuarial Opinion and Actuarial Opinion Summary
• Includes revised reporting for pooled companies and other technical changes
• Revisions proposed are intended to clarify common ambiguities in reporting and therefore promote uniformity
• Content was added regarding pooling arrangements to reduce confusion and improve accuracy in reporting
Supplemental Compensation Exhibit
New format for Part 2 – Officers and Employees
Must include PEO, PFO, 3 most highly compensated executive officers besides PEO & PFO; next 5 most highly compensated employees > $100,000. Final result is still the “Top Ten” compensated.
4 new columns Must include PEO, PFO, 3 most highly compensated executive officers besides PEO & PFO; next 5 most highly compensated employees > $100,000. Final result is still the “Top Ten” compensated.
Supplemental Compensation Exhibit
New format for Part 3 – Directors
Applies to all Directors other than full-time officers & andthose already listed in Part 2
3 new columns Applies to all Directors other than full-time officers & andthose already listed in Part 2
Schedule DB – Part D – Section 1
Footnote lines added to Schedule DB – Part D – Section 1• Derivative Investments• Report amount of offsets (assets and offsetting liabilities)
Notes to Financial Statements
REMINDER
Required Notes in the P/C Quarterly:
1A, 5D, 5E(3)b, 5I(2), 5I(3), 11B, 12A(4), 17B(2)b, 17B(4)a,17B(4)b, 17C, 20, 21G, 21I, 25F, 25 and 36B
SSAP No. 26, Bonds, Excluding Loan-Backed andStructured Securities (Ref # 2013-21)
Summary of Issue:• Non-substantive change which clarifies the amortization period for bonds
with make-whole provisions or that are continuously callable• January 1, 2014 effective dateDiscussion of Change:• Make whole provisions should not considered when determining the
timeframe for amortizing premiums or discounts, unless information is known that the issuer will invoke the make whole call provision
• For continuously callable bonds with a lockout period, the first call date should be used when determining the timeframe for amortizing premiums
• For continuously callable bonds without a lockout period, the entire premium should be expensed at acquisition
SSAP No. 3, Accounting Changes and Correctionsof Errors/SSAP No. 68, Business Combinationsand Goodwill (Ref # 2013-29)
Summary of Issue:• Non-substantive change which clarifies the footnote for
mergers• January 1, 2014 effective dateDiscussion of Change:• Mergers with a shell company (i.e., a reporting entity that has
no outstanding liabilities) are exempt from prior year restatements
• Mid-year mergers with a shell company should be reflected as of January 1 of the current year
SSAP No. 86, Accounting for DerivativeInstruments and Hedging (Ref # 2013-32)
Summary of Issue:• Non-substantive change which adopts ASU 2013-10, Inclusion of
the Fed Funds Swap Rate as a Benchmark Interest Rate• January 1, 2014 effective dateDiscussion of Change:• Incorporates the GAAP definition of a benchmark interest rate• Clarifies what can be used for a benchmark interest rate, which
includes the Fed Funds Effective Swap Rate (i.e., Overnight Index Swap Rate)
• Deletes prior guidance requiring the same benchmark for similar hedges
Corporate Governance Annual Filing Act/ModelRegulation
On August 18, 2014, the NAIC’s Financial Condition Committee adopted a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation
Provides a means for insurance regulators to receive additional information on the corporate governance practices of U.S. insurers on an annual basis
Under the requirements of the Model Act, U.S. insurers will be required to provide a detailed narrative describing governance practices to their lead state or domestic regulator by June 1st of each year
Insurers will be allowed some discretion in determining the level within the organization to report their corporate governance practices at, depending upon their structure and organization
The new disclosure requirements are expected to commence in 2016
PA DOI Certified Reinsurers and Qualified Jurisdictions
Certified Reinsurers as of June 23, 2014:
Qualified Jurisdictions as of June 23, 2014:• Bermuda-The Bermuda Monetary Authority (BMA)• Germany-The German Federal Financial Supervisory Authority (BaFin)• Switzerland-The Swiss Financial Market Supervisory Authority (FINMA)• United Kingdom-The Prudential Regulation Authority of the Bank of England
(PRA)
Certified Reinsurer Name Rating Effective Date
ACE INA Overseas Insurance Company Ltd Secure-3 January 1, 2014
ACE Tempest Reinsurance Ltd Secure-2 January 1, 2014
Equator Reinsurance Limited Secure-3 June 19, 2014