Contents NAIC 2013 Spring Meeting Summary Prepared by ... Spring 2013... · Dixon Hughes Goodman Insurance Services Group Industry News | May 2013 o The Valuation Manual (VM) reserve

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Dixon Hughes Goodman Insurance Services Group Industry News | May 2013

Contents Overview ………………………………………....1

Solvency Modernization Initiative……………2

Principles-Based Reserving Update…………3

Deferred Annuities Buyers Guide Finalization……………………………………….4 Accounting for the Patient Protection and Affordable Care Act (ACA) Assessment Fees………………………………………………..5

National Flood Insurance Program (NFIP) Changes and Catastrophe-Related Federal Legislation…………………………………….....6

Other Committee and Working Group Highlights

Statutory Accounting Working Group (SAPWG) and Emerging Accounting Issues Working Group (EAIWG)…………………....8 Blanks Working Group……………………..12 Valuation of Securities Task Force……….13 Examination Oversight Task Force………14 Other Health Insurance and Patient Protection and Affordable Care Act (ACA) Updates……………………………………...14

NAIC 2013 Spring Meeting Summary Prepared by Kevin Ryals, Michael Wright,

Brian Kilbane, Tom McIntyre and Linda Tolley-Raffle Insurance Services Group

Overview The National Association of Insurance Commissioners (NAIC) recently held their spring National Meeting in Houston, TX. This meeting served as a culmination for the next steps in key projects and initiatives which the NAIC committees and working groups have been discussing. Some of those key milestones included an updated draft of the Principles-Based Reserving (PBR) Implementation Plan to expose for comment, finalization of the Annuity Buyers Guide, and the submission of Model Audit Rule Requests to facilitate the collection of confidential information on insurer’s corporate governance practices called the “Annual Reporting of Corporate Governance Practices of Insurers Model Act.” In addition, there were significant discussions and comments by interested parties on a variety of issues, including the accounting for the Patient Protection and Affordable Care Act assessment fees, the increase in premiums associated with the National Flood Insurance Program, and the role captives and special purpose vehicles could play after PBR is fully implemented. (A link to the agenda, meeting materials, and summary results can be found at www.naic.org/meetings_home.htm)

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



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Solvency Modernization Initiative The Solvency Modernization Initiative Task Force, Group Solvency Issues Working Group, Corporate Governance Working Group, International Solvency & Accounting Issues Subcommittee all held meetings as well as other ancillary working groups and subcommittees that held discussions that reached into areas of interest or concern related to the solvency initiative (capital adequacy, principles-based reserving, etc. The Corporate Governance Working Group passed a motion to accept the draft of “Proposed Responses to a Comparative Analysis of Existing U.S. Corporate Governance Requirements” (Comparative Analysis). As a result of the work performed by this Working Group and the conclusions reached in the Comparative Analysis, a request for new model law development of the “Annual Reporting of Corporate Governance Practices of Insurers Model Act” (Corporate Governance Model Act) has been drafted as well as an amendment to the Model Audit Rule. In developing the provisions for the annual filing contemplated under the Corporate Governance Model Act, the Corporate Governance Working Group was focused on a few key guiding concepts: achieving convergence with international standards, limiting the scope of the information requested, and providing confidential protection to the information filed. The model act contains a provision that allows commissioners the ability to grant waivers from certain provisions of the Model Act. The due date for filing this annual information is still under consideration. The information that will be required based on the current structure of the annual filing is summarized below:

Discussion of significant changes in the overall corporate governance structure from the prior year. If there are no significant changes, a statement to that effect is required.

General description of the corporate governance framework and structure – this section would include a description of the structure of the board, committees of the board, duties of the board and committees and how they are governed; and rationale for size and structure of the board is encouraged.

Description of board and committees policies and practices – this section would include a description of how the qualifications, expertise and experience of the members of the board/committees meet the needs of the company; frequency of meetings and attendance by board/committee members; process of identifying and electing members to the board/committees; and process for evaluating board and committee performance.

Description of management policies and practices – this section would include a description of processes and practices to determine that officers/key employees in control functions have appropriate background, experience and integrity to fulfill their roles (suitability standards); and processes for performance evaluation, compensation and corrective action




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Management and oversight of critical risk areas – this section would include a description of the processes by which the board, committees and senior management provide appropriate oversight of the most critical risk areas impacting the company; included in this discussion would be a description of how the oversight/management responsibilities are delegated between these groups and how reporting responsibilities are organized within each critical area and the frequency of the reporting.

The amendment to the Model Audit Rule (“Annual Financial Reporting Model Regulation”) would add a new section to the model law between current sections 16 and 17. This amendment would add a new requirement to large insurers (those exceeding $500 million in annual premiums) to maintain an effective internal audit function that would be capable of providing the Audit Committee with independent assurance in respect of the insurer’s governance, risk management, and internal controls. The Solvency Modernization Initiative Task Force passed a motion to refer the Comparative Analysis, Corporate Governance Model Act and the amendment to the Model Audit Rule to the NAIC’s Executive Committee for consideration.

Principles-Based Reserving Update The Principles-Based Reserving Implementation Task Force met on Saturday, April 6, 2013 to discuss the revisions made to the PBR Implementation Plan since the fall 2012 Meetings, to introduce a draft PBR Legislative Packet and to discuss captive and Special Purpose Vehicle (SPV) activity as it relates to PBR. Revised Implementation Plan and Legislative Brief As states are considering law changes in their legislatures, it is imperative that legislatures are well informed of what PBR is and how it will be implemented. The Implementation Plan is one of the integral steps toward the adoption of PBR. Further, the Task Force drafted a Legislative Brief to be provided to state legislatures that provides an overview of the PBR rule and a Question and Answer section. The key changes to the PBR Implementation are as follows:

The Task Force included a section called Captives and Special Purpose Vehicles, which discusses the need for the NAIC to further assess the solvency implications of life insurer-owned captives and SPV’s (see Captive and SPV section below for more details)

The Task Force added a section called Timeline. In this section the Task Force described the following:

o Adoption of the PBR will not occur until there is a super-majority of jurisdictions (42) representing at least 75% of the subject premium.




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o The Valuation Manual (VM) reserve requirements apply to business issued on or after the 6-18 month period after legislation adoption.

o The VM allows for a three-year transition to give companies time to implement the PBR. PBR can be early adopted.

o Companies will also need to consider when updates to product methodologies in the VM are made as they plan out their implementation timeline.

The Task Force voted to expose the Revised PBR Implementation Plan for 30 days. A small group of regulators will work with NAIC staff to enhance and prioritize the tasks and decision points included within the plan. Also, during the meeting, there was significant discussion regarding some of the continuing challenges of implementation of PBR, primarily as it relates to the impact this will have on the state examinations and other related oversight by the state insurance departments. Mike Boerner, the Director of the Actuarial Office, Finance, of the Texas Department of Insurance gave a report on a survey that was performed to evaluate the resource needs that state insurance departments will need to sufficiently regulate the PBR requirements. 40 out the 56 NAIC jurisdictions responded. Overall, the responses state that there is shortage of actuarial resources at the state insurance departments, the state insurance departments anticipate having to hire external resources to fill this gap, and that there will need to be more training not only for the actuarial staff that is on hand, but also to provide training to the non-actuarial examination staff. Captives and Special Purpose Vehicles The Captive and Special Purpose Vehicles Use Subgroup of the Financial Condition Committee discussed that a white paper is being developed on how the PBR rules could impact captive and SPV’s after the adoption. The discussion of the Committee and Subgroup mentioned that it is anticipated that after the adoption of PBR, the likelihood of there being redundant reserves that are currently being created by Regulation XXX and AXXX would be minimized. The ability to use redundant reserves to finance collateral would then also be minimized, thus reducing the need or ability for insurers to create financing captives. The Committee and Subgroup did note that there would still be a need for captives and SPVs outside of the scope of financing collateral that are for other business and operational reasons. Therefore, the expectation from the Committee and Subgroup is that captives will not be completely eliminated; rather their use would be diminished. Further study on these impacts on captives and SPV’s will continue by the Committee and Subgroup.

Deferred Annuities Buyers Guide Finalization The Annuity Disclosure Working Group of the Life Insurance and Annuities Committee reached a key milestone during the spring 2013 Meeting. They adopted the Annuity Buyers Guide, which has been in the process of development for approximately two years. The Annuity Buyers Guide is designed to




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provide general information regarding the common annuity products that are available in the marketplace, and are to be provided to the customer for any variable annuity sale that occurs. They are not meant to be specific to a particular product issued by the insurer or serve as any legal, tax or financial advice. Accounting for the Patient Protection and Affordable Care Act (ACA) Assessment Fees One of the first measures discussed related to the proposed accounting for the assessment fee that is levied upon health insurers as required by the ACA. This fee is an annual assessment mandated by Section 9100 of the ACA. A health insurer’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. The annual fee for the health insurance industry will be allocated to individual health insurers based on the ratio of the amount of an entity’s net premiums written during the preceding calendar year to the amount of health insurance for any U.S. health risk that is written during the preceding calendar year. A health insurance entity’s portion of the annual fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk for each calendar year beginning on or after January 1, 2014. This issue was addressed by the Financial Accounting Standards Board (FASB) within Accounting Standards Update (ASU) 2011-06, Other Expenses. FASB concluded that “the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.” Therefore, a health insurer would recognize the liability under US GAAP in 2014, the year in which the health insurance is being provided. The Statutory Accounting Working Group (SAPWG) is taking a different approach. They believe that the liability should be recognized in 2013 instead of 2014 for statutory accounting principles. SAPWG believes that this assessment fee is similar to a guaranty fee, for which the statutory accounting guidance is within SSAP 35R as the assessment methodologies are consistent with the fees under the ACA. The triggering event for recognizing a liability per SSAP 35R for premium-based assessments is the writing of premium or being obligated to write the premium. Since the premium being written for which the fee is based on is in 2013, then the accrual should be recorded in 2013 and payable in 2014. Therefore, SAPWG recommends rejecting ASU 2011-06 because it delays the recognition of expense and creates a deferred cost, or asset, that is unavailable due to the future required payment in 2014. Also, ASU 2011-06 is inconsistent with the statutory definitions of liabilities and admitted assets. SSAP 35R would be revised accordingly to reflect the accounting for the fees associated with the ACA.SAPWG’s received comments from the State of North Carolina and representatives from five other interested parties disagreeing with SAPWG’s proposed accounting, preferring the FASB recognition approach versus SAPWG’s. Those comments were discussed freely between the interested parties and SAPWG. Members




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of SAPWG that support the SAPWG accounting model were very outspoken that their main concern is that insurers can calculate and understand what their payable in September 2014 would be on January 1, 2014, and therefore, should reduce surplus accordingly as that amount will not be available to policyholders. The interested parties’ approach was to be transparent in the footnote disclosures through a subsequent event footnote describing what the future payment will be in the 2014 fiscal year. After this debate the SAPWG requested that the industry groups provide additional information for a conference call on April 18, 2013 for further discussion and research. The accounting impact for health insurers relating to this proposed guidance is quite significant. It is estimated that the total assessment to be paid to Federal Government will be approximately $8 billion in 2014 and increasing to approximately $14 billion by 2018. National Flood Insurance Program (NFIP) Changes and Catastrophe-Related Federal Legislation National Flood Insurance Program Changes The Catastrophe Insurance Working Group received an update on the upcoming changes to the National Flood Insurance Program through the Flood Insurance Reform Act of 2012 (the “Act”). The main provision of the Act is to raise rates to reflect the true flood risk in order to make the NFIP more financially stable. Interested parties and consumer groups voiced their concerns during the meeting as there have been examples of significant rate increases that consumers cannot afford. The main financial challenge that faces the NFIP is that during the creation of the NFIP in 1968, the new construction and development standards required by the NFIP was only required for new structures. Pre-existing homes and business were “grandfathered” in and were able to obtain insurance at lower, subsidized rates, even though the rates did not reflect the properties true risk, especially considering those properties did not meet the new construction requirements. Further, as the NFIP updated the flood maps, these same properties may have also seen a higher flood risk from the previous map. Therefore, these properties are still receiving the lower, subsidized rates, but their flood risk was increasing. The new rate changes in the Act are meant to address this gap in order to reflect the full risk. The subsidized rates will be phased out over time, beginning in late 2013. The Federal Emergency Management Agency (FEMA) state only 20 percent of NFIP receives the subsidies; therefore, these rate increases will not impact all consumers that utilize the NFIP. In summary, the rates changes are grouped as follows:

Owners of non-primary/secondary residences in Special Flood Hazard Areas (SFHA) will see a 25 percent increase annually until rates reflect true risk – beginning January 1, 2013.




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Owners of properties which have experienced severe or repeated flooding will see a 25 percent increase annually until rates reflect true risk – beginning October 1, 2013.

Owners of business properties in SFHA will see a 25 percent increase annually until rates reflect true risk – beginning October 1, 2013

Owners of primary residences in SFHA’s will be able to keep their subsidized rates unless or until:

The property is sold The policy lapses The property suffers severe, repeated, flood losses, or A new policy is purchased.

Lastly, the Act calls for the phase-out of discounts and use of the risk-based rates when a community adopts a new Flood Insurance Rate Map. This implementation will begin in 2014 and consumers will see increasing rates of approximately 20 percent per year for five years.

Catastrophe-Related Legislation In the aftermath of Superstorm Sandy and other natural disasters, members of the House of Representatives have been sponsoring legislation to provide various types of Federal, State, private industry, or consumer backstops to help fund losses that arise from catastrophic natural disasters. The proposed legislation described below has been introduced to the House of Representatives; however, the expectation from the Working Group and interested parties is that this proposed legislation would not be successful. A brief summary of each bill is below:

Homeowners Insurance Protection of 2013 – This bill creates the National Commission on Catastrophe Preparation and Protection (the “Commission”). The Secretary of the Treasury, in consultation with the Secretary of Homeland Security, would have the authority to establish a tax exempt program to provide reinsurance coverage above a retention level for eligible State programs. This program would fund covered losses insured or reinsured by the State program. The price of the reinsurance coverage is recommended by the Commission to cover annual expected losses, loss adjustment expenses and administrative costs. The premiums would fund the Consumer Hurricane, Earthquake, Loss Protection (HELP) fund, which would by the eligible covered losses.

Homeowners Catastrophe Protection Act of 2013 – This bill would amend the IRS Code to permit insurers to create tax-deferred reserves, called Policyholder Disaster Protection Funds, to cover losses from natural disasters. The amendments to the IRS Code would also create tax-exempt Catastrophe Savings Accounts, funded by individual taxpayers, which would be used to pay for expenses incurred as a result of a Presidentially-declared disaster. Further, a tax credit would be granted to qualified homeowners who perform mitigation revisions to their home.




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Homeowners Defense Act of 2013 – This bill creates the National Catastrophe Risk Consortium (the “Consortium”). The Consortium’s purpose is to: (1) create an inventory of catastrophe risk obligations of state entities; (2) issue securities and other financial instruments linked to state catastrophe risk; (3) coordinate insurance contracts and (4) act as a repository of state risk information and create a catastrophe risk database.

Other Committee and Working Group Highlights Statutory Accounting Working Group (SAPWG) and Emerging Accounting Issues Working Group (EAIWG) This section summarizes the actions by the SAPWG) and the EAIWG relating to the adoption or exposure of the Statements of Statutory Accounting Principles. The following is a summary of accounting changes or revisions that was adopted by the SAPWG during the spring 2013 Meeting:

Ref # Statement Reference Title Description of Change or Revision Effective

Date

2012-24 SSAP No. 86 Hedge Accounting Requirement

Incorporates language from Exhibit C into paragraph 15. With this revision, hedging transactions which meet the hedging effectiveness criteria can follow fair value hedge accounting if elected by the reporting entity.

2013

2012-25 IP No. 99

ASU 2012-01–Health Care Entities Continuing Care Retirement Communities–Refundable Advance Fees (Topic 954)

ASU is rejected as not applicable as continuing care retirement communities are not health insurance entities filing statutory financial statements.

2013

2012-26 SSAP Nos. 90 and 40

Move guidance from SSAP No. 90 and into SSAP No. 40

Placement revisions from SSAP No. 90 and SSAP No. 40 for real estate investments

2013




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Ref # Statement

Reference Title Description of Change or Revision Effective Date

2012-27 SSAP No. 101

GAAP Standards for Income Tax Pending Statutory Review: FSP FAS 109-1 and 2, and FSP FIN 48- 2 and 3.

Adopted FSP FAS 109-1, but reject FSP FAS 109-2, FSP FIN 48-2 and FSP FIN 48-3.

FSP FAS 109-1 provided guidance on the application of FAS 109 to the provision within the American Jobs Creation of 2004 that provides a tax deduction on qualified production activities, and would be classified as a special deduction in accordance with FAS 109 and should be considered in (a) measuring deferred taxes when graduated tax rates are a significant factor and (b) assessing whether a valuation allowance is necessary.

2013

2012-30 SSAP No. 32 Adding a preferred stock class of Exchange Traded Funds (ETFs)

Adopted revisions to SSAP No. 32 to reference ETFs. 2013

2012-31 SSAP No. 101 Inconsistency regarding tax planning strategies

Adopted change to para. 14 to show that tax planning strategies are not required, but are to be consistent with the valuation allowance.

2013

2012-32 IP No. 99

ASU 2012-07–Entertainment—Films Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs

Rejected ASU as not applicable as it is specific to the entertainment industry. 2013

2013-01 SSAP No. 26 Mandatory Convertible Securities

Adopted revisions to change the accounting and reporting requirements for mandatory convertible securities. Mandatorily convertible securities shall be reported at the lower of amortized cost or fair value during the period prior to conversion.

2013




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Ref # Statement

Reference Title Description of Change or Revision Effective Date

2013-09 Various Consider “2005 through 2009” INTs For Inclusion Into SSAPs

Adopted ratification of the EAIWG INT recommendations to incorporate INT references in the text of SSAP’s.

2013

The following is a summary of accounting changes or revisions that were exposed for comment by the SAPWG during the spring 2013 Meeting:

Ref # Statement Reference Title Description of Change Comment

Deadline

2013-02 SSAP No. 21 & 92

EITF 06-4, Accounting for Deferred Compensation and Postemployment Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements

Recommends adoption with modification with guidance incorporated into SSAP No. 21 & SSAP No. 92 to reflect the accounting impact of endorsement split-dollar life insurance arrangements

May 31, 2013

2013-03 Either IP 99 or SSAP No. 104

EITF 00-18, Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees

Recommends comments from regulators and industry regarding guidance for equity payments to non-employees. Based on responses, this ASU may be rejected as not applicable, or have guidance incorporated into the SSAPs.

May 31, 2013

2013-04 IP No. 99

ASU 2013-02, Comprehensive Income – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

Recommends rejection of ASU 2013-02 as not applicable to statutory accounting.

May 31, 2013

2013-05 Manual Guidance

Nullified and Superseded SSAPs and INTs within the AP&P Manual

Recommends moving all 100% superseded SSAPs and INTs from the printed manual and including these items on the AP&P Manual Updates Webpage.

May 31, 2013

2013-06 SSAP No. 100

ASU 2013-03, Financial Instruments: Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities

Recommends rejection of ASU 2013-03 in SSAP No. 100. This ASU is only for nonpublic entities. Guidance on the fair value hierarchy and source of FV measurement is required for all entities in the annual investment schedules if FV is disclosed.

May 31, 2013




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Ref # Statement

Reference Title Description of Change Comment Deadline

2013-07

SSAP No. 64, SSAP No. 86, SSAP No. 103

ASU 2013-01: Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities

Recommends rejection of ASU 2013-01 and proposes 1) disclosures for items in scope that are offset with a valid right to offset, or 2) revised guidance to prohibit items in scope from being offset regardless if a valid right of offset exists.

May 31, 2013

2013-08 SSAP No. 40 Clarification of SSAP No. 40 Recommends clarification of the definition for "encumbrances" within this SSAP.

May 31, 2013

2013-12 SSAP No. 101

DTA Admissibility Test for Financial and Mortgage Guaranty Insurers

Recommends revisions to SSAP No. 101 to clarify the 11b calculation for financial and mortgage guaranty insurers

April 26, 2013

2013-13 SSAP No. 86 Derivative Investment Reporting Subgroup Referrals

Reviews the referrals from the Derivative Investment Subgroup and suggests potential substantive revisions to SSAP No. 86

May 31, 2013

2013-14 SSAP No. 62R

Accounting for Portfolio Reinsurance Agreements Between Affiliated Entities That Do Not Result in Surplus Gains

Sponsor recommends changes to the accounting method for the exception in SSAP No. 62R for retroactive reinsurance agreements. Intercompany reinsurance agreements, and amendments thereto, 100% owned by a common parent or ultimate controlling person, provided there is no gain as a result from the transaction, would not apply the retroactive reinsurance agreement statutory accounting principles.

May 31, 2013

2012-23 SSAP No. 56 Seed Money Disclosure in SSAP No. 56

Recommends new disclosures pertaining to seed money and fees and expenses in separate accounts.

April 26, 2013

2012-33 SSAP No. 57 Proposed revision of SSAP 57—Title Insurance, for Loss and Loss Adjustment Expense Reserves

Proposes revisions to clarify title insurance loss and LAE reserves

April 26, 2013

2013-11 SSAP No. 101

Accounting Disclosures for Restricted Assets

Proposes revisions to the SSAP No. 1 disclosure to capture more information regarding restricted assets in the financial statements.

April 26, 2013




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Blanks Working Group The Blanks Working Group adopted the following proposals during the spring 2013 Meeting:

Ref # Description of Change or Revisions Effective Date

2012-31BWG Add a requirement to the Annual Audited Financial Reports for auditors to include testing of underlying data provided to the actuary for estimating reserves to the statutory audit process for title insurers.

Annual 2013

2012-32BWG Add a new question 3.1 to the General Interrogatories, Part 1 asking if the reporting entity is a member of a holding company system and renumber the current 3.1 and 3.2 accordingly.

First Quarter 2014

2012-33BWG Add instructions to the Property and Casualty Line of Business Appendix to clarify the reporting of business placed by a lender (“force-placed or lender placed”). Annual 2013

2012-34BWG

Separate the State Low Income Housing Tax Credit (LIHTC) categories on Schedule BA into guaranteed and nonguaranteed similar to the federal LIHTC. For the Asset Valuation Reserve Equity and Other Invested Asset Component – Basic Contribution, Reserve Objective and Maximum Reserve Calculations page, change line 68 to reflect guaranteed LIHTC. Add new line 69 for non-guaranteed state LIHTC.

Annual 2013

2012-35BWG Modify illustration for Note 17C to allow for disclosure on unrated securities and securities other than bonds and preferred stocks. Modify the electronic notes illustration.

Annual 2013

2012-36BWG

Add a new line, line 4.3 for life and fraternal and line 7.3 for property, for certified reinsurers to page 3 of the Trusteed Surplus Statement. Modify the instruction for Trusteed Surplus, line 12 for life and fraternal and line 14 for property, to clarify that it is Total Trusteed Assets reported on Schedules A, B, C, and D.

Annual 2013

2012-37BWG Add instructions and an illustration to Note 22, Events Subsequent, to disclose assessments the reporting entity may be subject to under section 9010 of the federal Affordable Care Act that is not otherwise recognized in the statement.

Annual 2013

2012-38BWG Add category lines to Schedule BA for Working Capital Finance Investments and a description for those lines in the annual and quarterly statement instructions Annual 2013

2012-39BWG

Modify various parts of Schedule F (property) and Schedule S (life, health and fraternal), moving bank information for letters of credit to the footnote table. “Federal Id Number” column changed to “ID Number” with clarifying instruction. Modify the crosschecks in the certified and unauthorized reinsurer schedules to reflect the column numbering changes being made.

Annual 2013

2012-40BWG

Add information about Certified Reinsurer Identification Number (CRIN) to be consistent with the information provided in the general instructions for Schedule F and S in the annual statement instructions regarding federal ID number. Add instruction for the type of reinsurer. Add a new column with description “Certified Reinsurer Rating (1 through 6)” to Schedule F and Schedule S and corresponding instructions. Add a new column with description “Effective Date of Certified Reinsurer Rating” to Schedule F and Schedule S and corresponding instructions with appropriate modifications for the quarterly filing.

First Quarter 2014




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The Blanks Working Group exposed and referred the following proposals to the Reinsurance Task Force during the spring 2013 Meeting:

Ref # Description of Proposed Change or Revisions Proposed Effective Date

2013-03BWG

Eliminate the instructions for Reinsurance Attestation Supplement and Exceptions to Reinsurance Attestation Supplement and remove from the Supplemental Exhibits and Schedules Interrogatories and the associated barcode document identifiers from the Appendix. Life, health, fraternal and title only included due to barcodes being uniform.

Annual 2013

2013-08BWG

Modify various column headings of Schedule F, Part 5–Provision for Unauthorized Reinsurance and Schedule F, Part 8–Total Provision Portion in the property/casualty blank and Schedule F, Part 3–Provision for Unauthorized Reinsurance in the title blank to provide more clarity of reporting.

Annual 2013

2013-09BWG Modify various column headings in Schedule F, Part 8–Provision for Overdue Reinsurance–Title of the schedule, add an additional column, and modify a column heading for the lines section.

Annual 2013

Valuation of Securities Task Force The Valuation of Securities Task Force met the Saturday afternoon of April 6, 2013. After a valiant effort by the NAIC staff, at the request of the industry, the group referred proposed instructions for incorporation into SSAP No. 43R. The Statutory Accounting Principles Working Group is currently in the process of finalizing the language for SSAP 43R and this group will review again once finalized. This change will clarify how insurers should determine the NAIC designation to be reported in the requisite column in the quarterly acquisition schedules. Insurers will be able to utilize either breakpoints from the prior year-end or credit ratings assigned by NAIC CRPs from the RMB or CMBS security.

The task force also adopted amendments to the Purposes and Procedures Manual of the NAIC Securities Valuation Office (SVO) for mandatory convertible securities in response to statutory accounting changes. On Friday, April 5, 2013 the Statutory Accounting Principles Working Group adopted changes to SSAP No. 26 to include a new definition of mandatory convertible securities and change the pre-conversion valuation method to the lower of amortized cost or fair value. The change was needed to exempt mandatory convertible securities from being assigned NAIC 6s under the new SVO classification procedures. This change was also referred to the Capital Adequacy Task Force to ensure the definition in the risk-based capital instructions refers to the SSAP.

The task force exposed a proposal to consider using a risk-free discount rate in the RMBS and CMBS modeling project as well as to consider all cash flows of the investments. The proposed wording would use the U.S Treasury strip curve as the discount rate, instead of each security’s coupon rate, in




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determining the net present value of expected loss. The change would result in the net present value for the security is derived by applying a discount rate to the projected weighted cash flow. The comment period was scheduled for 30-days ending May 8, 2013.

Finally the task force heard an update on the joint American Council of Life Insurers (ACLI)/SVO Foreign Audit Project. Under this project the ACLI has asked to extend the list of countries whose accounting standards are exempt for the requirement of reconciliation to US GAAP or to IFRS. As everyone is aware current NAIC policy does not require reconciliation for Canadian GAAP, UK GAAP or Australian GAAP. The task force’s concern is whether local accounting standards can be relied upon to present financial results in a manner sufficiently comparable to what would be presented under the reconciliation standard. The group working on the project is going to utilize German GAAP as a subject and find an accounting firm that is expert in German GAAP to provide focused education to the SVO.

Examination Oversight Task Force The Contract Examination Oversight (E) Working Group discussed, exposed and adopted a Contractor Listing Form for use in accumulating information on contractors that offer financial examination support services to insurance departments. The listing of contractors will be posted on the Working Group's page on the NAIC website following the July 31, 2013 deadline for submission of information to the NAIC by contractors. This listing will also be published on I-SITE for regulator use.

During the meeting of the Examination Oversight Task Force, discussion regarding Own Risk and Solvency Assessment (ORSA) and the development of ORSA guidance took place. Handbooks and other guidance publications will need to be created and/or refined. ORSA will provide much more timely information and will bring with it efficiency.

The other working groups within this task force discussed their charges for 2013. These include updates to the Financial Condition Examiners Handbook related to climate change and the IT Review Work Program, contractor examination oversight, onsite financial examination of holding company groups and the development of guidance for principle based reserving and the ORSA summary report.

Other Health Insurance and Patient Protection and Affordable Care Act (ACA) Updates The Center of Consumer Information and Insurance Oversight (CCIIO) has set standards related to Essential Health Benefits, Actuarial Value, and Accreditation Final Rule (EHB Rule), HHS defines EHB based on state-specific benchmark plans. CCIIO has posted a summary of each state's EHB-benchmark plan on the CCIIO website (http://cciio.cms.gov/resources/data/ehb.html). The EHB-benchmark plan begins as the selected or default plan (base benchmark) and is amended and/or supplemented to meet the requirements for coverage of benefits and limits described in 45 CFR 156.110.


http://cciio.cms.gov/resources/data/ehb.html



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The Speed to Market Task Force received an update on the ACA System for Electronic Rate and Form Filing (SERFF) Plan Management implementation project, which included acknowledgement of a successful March 28, 2013 SERFF v6.0 release and includes all the features health insurance issuers need to create and submit qualified health plans for use on an exchange. Likewise, the state analysts have functionality to allow them to document and communicate review status on these submissions. In addition, NAIC staff provided information regarding the implementation approach to address public access using SERFF, which has a projected release in 2014. This discussion was general in nature and there were no decisions made during this meeting. This will be addressed at future meetings.

Health Insurance and Manage Care Committee adopted revisions to the Coordination of Benefits Model Regulation (#120) and a memorandum to NAIC members encouraging them to adopt the revisions to Model #120. The Regulatory Framework Task Force adopted revisions to the Coordination of Benefits Model Regulation (#120) that address issues related to medical benefits (“med pay”) coverage in automobile “no fault” and traditional automobile “fault” type contracts and, as provided in Section 2714 of the federal Public Health Services Act (PHSA), the extension of dependent coverage to age 26. The Task Force also reviewed a draft outline that is to be used to develop companion NAIC model regulations to the recently adopted Individual Market Health Insurance Coverage Model Act (#36) and the Small Group Market Health Insurance Coverage Model Act (#106).

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Contents NAIC 2013 Spring Meeting Summary Prepared by ... Spring 2013... · Dixon Hughes Goodman Insurance Services Group Industry News | May 2013 o The Valuation Manual (VM) reserve