May is always a decisive month for statutory reporting. This is the month that the annual statement reporting for the current year is supposed to be finalized. Consequently, and because human nature seems to be to let things go until the last moment, there are usually many Blanks proposals to be considered. But even before the Blanks Working Group (BWG) meeting, Statutory Accounting Principles Working Group (SAPWG) usually meets to adopt items that, in turn, result in Blanks reporting changes. However, those were not the only NAIC groups meeting this month. Let’s take a look.
Valuation of Securities Task Force (VOSTF) – May 14, 2023
The VOSTF exposed three different revisions to the Purposes and Procedures Manual of the NAIC’s Investment Analysis Office (P&P Manual) for comment during this meeting.
- Consolidation and clarifying of the definition of a NAIC Designation. The proposal would combine the definitions currently found in two different parts of the P&P Manual, as well as clarify the meaning of a NAIC Designation, including its use, purpose, and risk addressed. The exposure includes some suggestions offered from already received comment letters. The comment period is for 45 days, ending June 29.
- As previously discussed in March, the Securities Valuation Office (SVO) staff was directed to draft a process on how it might challenge a filing exempt (FE) NAIC Designation. That suggested process was exposed for a 60-day comment period ending July 14 during this meeting. Prior to being exposed, the Task Force heard comments questioning whether this procedure was needed. The proposal was exposed, with the chair asking that anyone submitting a comment letter disagreeing with the proposed process provide alternatives for consideration in the letter.
- This proposal would clarify the meaning of repurchase agreement in the derivatives transaction definition for funds in the P&P Manual. The language clarifies which side of a repurchase agreement comprises a derivative transaction and brings the P&P Manual and Statement of Statutory Accounting Principles (SSAP) No. 103R in alignment. The proposal was exposed for a 45-day comment period, ending June 29.
The Task Force heard an update on the proposed collateral loan obligation modeling methodology project. The Task Force also was informed of a possible fee structure change for filing with the SVO/Structured Securities Group. The fee structure will be part of the 2024 NAIC budget discussion.
SAPWG – May 15, 2023
The following action was taken on items that were previously exposed for comment.
| Reference # | Subject | Disposition |
|---|---|---|
| INT 22-02 | Extension of INT 22-02 through second quarter of 2023, expires August 16, 2023. | Adopted, effective immediately. |
| 2023-03 | Revisions to SSAP Nos. 51R, 59, and 61R to expand disclosures for Life/Fraternal Risk-Based Capital (RBC) use. | Deferred. |
A bit of an explanation is needed here. The stated purpose of this proposal was to provide information for the Life/Fraternal RBC that could be directly pulled from the Notes to Financial Statements (Note) in the annual statement. However, as proposed, the Note would have included information not used in the RBC and included information that could already be pulled into RBC from other statement sources. In addition, the information in the proposed Note would have unnecessarily become part of the audit process. The intent of the deferral is to eliminate the duplicate information and reformat the pieces of information not currently available for a direct pull into the RBC, probably as a general interrogatory.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-11EP | Editorial Updates. | Adopted. |
Although most of the above editorial changes were minor in nature and deal with having consistent references and language, there was one of note. SSAP No. 86 – Derivatives language was revised, changing a disclosure category from “intrinsic value” to “volatility value.”
All adopted items have been posted to Bookshelf for those using the online version of the Accounting Practices and Procedures Manual, or as a pdf on the SAPWG webpage under the Documents tab.
The following action was taken on new items.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-12 | Clarifies scope and reporting of residual interest investments in SSAP No. 48. | Exposed for comment through June 30. |
| 2023-13 | Paid-in-kind (PIK) interest disclosure clarification within SSAP No. 34. | Exposed for comment through June 30. |
2022-14 | SSAP Nos. 93 & 94R expand guidance to include all tax equity investments providing federal business tax credit and state premium tax credits where specific criteria are met. | Exposed for comment through June 30. |
All exposed items have been posted to the SAPWG webpage, under the Exposure Drafts tab.
The Working Group decided not to respond to a letter from VOSTF on acquisition of commercially available analytical data, as the data in question would not have an impact on the work of SAPWG. (Only positive responses are required for referrals.) Regulators were advised to respond directly to the VOSTF if they had any comments on this initiative.
The Life Actuarial Task Force (LATF) provided a verbal update on the negative Interest Maintenance Reserve (IMR) referral from SAPWG. LATF indicated it was developing IMR templates for the Actuarial Opinion and Memorandum and the Principles Based Reserving (PBR) Actuarial Report, changes to reduce double counting of negative IMR in the asset adequacy testing (AAT) and PBR, and disclosures under Actuarial Guideline 53. LATF also stated that negative IMR should not depend on AAT and the AAT should not be a safeguard for negative IMR at this time. LATF will prepare a more comprehensive written memo for SAPWG.
Property RBC Working Group – via May 15 email
The Property RBC Working Group re-exposed proposal 2023-02-P for a seven-day comment period ending May 21. This proposal provides the annual update to the industry underwriting factors and had previously been adopted. However, after adoption errors were found for the homeowners/farmowners, workers’ compensation, and commercial multiple peril lines of business on page PR017, Line 1. Correction of those factors are in this proposal.
RBC Investment Risk and Evaluation Working Group – May 16, 2023
At the beginning of the meeting, the chair announced the expectation was not to conduct a vote on the residual tranche risk factor or sensitivity test, but to review comment letters, get input from Working Group members, determine if additional information is needed, and schedule another meeting. NAIC staff provided some statisticcs on residual tranches from year-end 2022 data.
- Most residual tranches were acquired in the last three years.
- Fifty-six percent of owned residual investments involve a related party.
- Fifty percent of a company’s residual investments are less than $2 million and 80% are less than $10 million. However, a few were $50 million or greater.
- The percentage of residuals to surplus varies greatly by company, with most companies having 5% or less, while the percentage of residuals to invested assets runs less than .5%.
- Although it varies a lot from company to company, changing the factor to 45% would change the RBC percentage range from less than .1% to 8%. This was interpreted to mean there would not be an overall significant effect on RBC results.
Before a discussion of comment letters received on the residual factor and sensitivity test, the chair provided his comments first. The chair disagreed with the idea that not enough analysis had been done to support an interim 45% factor, indicated that residuals were a growing asset class that should be watched carefully, and there was no option to defer the adoption of a factor, as the reporting form for the Life/Fraternal RBC has already been altered to accommodate the reporting. The discussion then moved onto the comment letters received, which were from industry, interested parties, regulators, and the American Academy of Actuaries (Academy). Overwhelmingly, the letters indicated concern that the proposed 45% was not derived from a transparent, data-driven analysis process. The chair then extended the comment period until June 9 but indicated only new comments should be submitted; not duplication of items already discussed. Another meeting will be scheduled to vote upon the proposal. The last item covered was an apparent form letter being circulated to the states objecting to the work this Working Group is doing. The Working Group itself had not received a copy of the letter, so the chair stated that if there is an objection to the work being done by the group, that concern should be brought to the Working Group.
Health RBC Working Group – May 16, 2023
There were only two things on the agenda. The first item was a review of the Health Test and suggested revisions to it. This took much longer than necessary because the review included all the changes that had already been adopted for this year. Then, an explanation of why the test was being revised again and what exactly was being revised this time. After all that, the proposal was exposed for a 45-day comment period. The WG also is sending the proposal to the Life/Fraternal RBC and Property RBC Working Groups for exposure, as the Health Test appears in the Life/Fraternal and Property/Casualty statements. Once all of the RBC Working Groups have adopted it, the proposal will be sent to the Blanks Working Group for consideration to be included in 2024 reporting.
The group then adopted some editorial changes to the new affiliated investments reporting instructions that are needed for this year.
BWG – May 31, 2023
Originally, the BWG summary was to be added to this article from the balcony of a condo in Saint Thomas. But at the last minute, those plans had to be postponed. Therefore, this section should be read imagining the sound of the ocean; a gentle, tropical breeze; the warm sun; and a pina colada.
The May BWG meeting is always an important one as changes to the current-year NAIC annual statements and corresponding instructions are supposed to be finalized by June 1. As the summary of the BWG activity takes place below, it might be a good time to remind the reader of a charge given to BWG by the Financial Conditions (E) Committee. That charge is listed on BWG webpage as an adopted goal. It reads:
- Coordinate with the applicable task forces and working groups as needed to avoid duplication of reporting within the annual and quarterly statement blanks.
To help achieve this goal, BWG revised its Blanks Agenda Proposal Form to include a field asking if the information requested in the proposal is available elsewhere in the statement. A “yes” response requires an explanation as to why that information should be duplicated by the new proposal. Some of the proposals being acted upon during this meeting don’t appear to take that goal to heart, either by the submitter or by BWG. The redundancy issue has been highlighted in this summary.
The following activity was taken on items that had previously been exposed for comment. Some items are marked as “modified,” indicating that the adopted proposal was not the version that had been posted on the BWG webpage. Modifications were included in the meeting material that was distributed.
| Reference # | Subject | Disposition |
|---|---|---|
| 2022-17 | Addition of disclosures to Note 8 – Derivative Instruments for data capture, new electronic-only columns, and new code column instructions to Schedule DB. All statements. | Adopted as modified for 2023. |
| 2023-01 | Establishes Pet Insurance as a separate line of business for the Underwriting & Investment Exhibit, the State Page, Schedule P, and the Insurance Expense Exhibit. Property/Casualty statement. | Adopted for January 1, 2024 implementation. |
Since the adoption of the Pet Insurance Model Act, it seems to be full speed ahead for creating separate reporting for this line of business. However, some feel it may be too much, too soon, considering the immateriality of this line of business in the property/casualty industry. That was the gist of a rather robust discussion on the topic, with regulators and industry being divided as to how much reporting is appropriate for pet coverage at this point in time. In the end, the proposal was adopted with January 1, 2024 set as the implementation date. Since this proposal will change the reporting format of numerous pages in the statement, all property/casualty insurers will have to adjust their internal procedures to accommodate reporting changes, even if they don’t write pet insurance.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-02 | Provides a supplemental filing to identify premiums that are reportable for the Market Conduct Annual Statement (MCAS). All statements. | Adopted for 2023. |
This proposal created quite a reaction from various Interested Parties (IPs) when first exposed for comment. The concern with the original proposal was most of the information being requested was already available in the various annual statements. IPs felt regulators should utilize the information already available and not create redundant reporting. (Interestingly, the proposal indicated it was not asking for information already available.) Prior to this meeting, the proposal received a major overhaul, changing responses from a dollar amount that was already reported, to a response of “Yes” or “No,” indicating if the MCAS will be filed for certain lines of business. The filing is prepared on a state-by-state basis. Unfortunately, that means that insurers not writing any of those lines of business are still going to have to prepare individual state pages to respond, creating 50-plus new pages to a company’s filing.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-03 | Removes crosschecks on the Accident and Health Policy Experience Exhibit. Life/Fraternal statement. | Adopted for 2023. |
| 2023-04 | Adds the appointed actuary contact for all statements and the qualified actuary contacts for the Life/Fraternal statements to the Jurat Page. | Adopted as modified for 2023. |
The Academy submitted a comment letter regarding only the appointed actuary contact addition. The letter pointed out that appointed actuary contact information is already available in the statement and need not be duplicated here. (The proposal submission form indicated the information was not already available.) The information can be found in the General Interrogatories and as part of the signature section of the filed Actuarial Opinion. The proposal submitter acknowledged both but indicated the Actuarial Opinion was only available in PDF format and not data-captured on the NAIC database, while the General Interrogatory did not contain all the information being requested.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-05 | Modifies the Cybersecurity Supplement of the Property/Casualty statement. | Deferred for further discussion. |
| 2023-07 | Deletes legal entity identifier column and updates the code column in various investments schedules. All statements. | Deferred for further discussion. |
The above proposal was deferred to allow implementation at the same time as a significantly revised Schedule D – Part 1. That implementation is currently targeted for January 1, 2025.
| Reference # | Subject | Disposition |
|---|---|---|
2023-08 | Instructions clarify that mutual insurance companies are to be included in Schedule Y – Part 3. All statements. | Adopted for 2023. |
| 2023-09 | Adds a Note 37 to the Life/Fraternal statement. | Deferred for further discussion. |
The stated purpose of 2023-09 was to provide a direct pull from the Life/Fraternal annual statement into the C-2 Mortality section of the Life/Fraternal RBC. However, a significant amount of the requested information would not be used in the RBC. In addition, much of the information was available in the statement and was already being pulled directly from the statement into the RBC. This Note would have duplicated that information. (You guessed it; statement availability was not indicated on the submission form.) Finally, it was pointed out that including this information in the Notes to Financials would unnecessarily subject it to audit. With all of this in mind, the decision was to delay action on this proposal. Industry, regulators, and NAIC staff will work on an alternative method of including information not already in the statement. Perhaps as a General Interrogatory?
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-10 | Updates the three primary issue periods on the Long-Term Care Experience Reporting Form 2. All statements. | Adopted as modified for 2023. |
| 2023-11 | Enhances the disclosure requirements for Note 7 – Investment Income. All statements. | Adopted as modified for 2023. |
The author of the above proposal admits that the information being requested here is already available elsewhere in the annual statement and for some of the information, even provides direct references to those locations. However, instead of utilizing the electronic resources available to extract that information into a comparable format (aka, a report), the proposal states that it is more convenient to have the information available in one location for easy comparability. (What was that charge for reducing reporting redundancy again?)
Except for 2023-07, the chair asked that further work on deferred items be completed by June 30, if that item was to be considered for action at the BWG August meeting. Several editorial changes were adopted, mostly for the 2023 annual statement.
Oddly, no new proposals were presented. BWG policies state that any changes to the 2024 quarterly statements must be submitted no later than July 1 and exposed for comment no later than July 15. Maybe the 2024 quarterly is final at this point?
At the end of the meeting, Dale Bruggeman, chair of SAPWG and an Ohio regulator, suggested more thought might be needed to the total effect of Blanks proposals, particularly when adding lines of business to reporting formats. He recommended more coordination between the proposal sponsor, BWG, and other NAIC groups; for example, RBC and financial solvency groups. What sometimes appears to be a simple revision is really more complicated in its entirety. (Can redundancy be added to that coordination?)
Capital Adequacy Task Force – via email June 1, 2023
(Though technically a June “issue,” action on this item will occur well before the June summary will be published.) Proposal 2022-09-CA, which provided a new format and instructions for reporting of affiliated investments, had already been adopted in March for all of the RBC formulas. However, it was re-exposed through June 14 for editorial changes to the Health and Property/Casualty RBC clarifying the examples provided in the Indirectly Owned Alien Insurance Affiliates/Subsidiaries section and to add a footnote to the % Owned column in the blank.
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