January was a slow month for NAIC committee activity as regulators recognized industry is diligently working on producing its annual statements by the March 1 filing deadline. However, activity can’t come to a complete halt or changes won’t be in place in a timely manner for 2024. The following groups continued their quests during January.
Statutory Accounting Principles Working Group (SAPWG) – January 10, 2024 and January 31, 2024 via email
SAPWG began 2024 with the adoption of two items needed for year-end 2023 and exposing one item to further the work of the Principles-Based Bond Definition Project.
| Reference # | Subject | Disposition |
|---|---|---|
| 2023-24 | Rejection of Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (CECL), and related ASUs. | Rejection of CECL was adopted, with effective date of December 31, 2023. |
Originally exposed for comment on December 11, 2023 with the comment period ending February 9, 2024, the comment period was shortened to December 29, 2023 at the request of interested parties (IPs). In their request, IPs noted that ASU 2016-13 is effective for non-public companies preparing U.S. GAAP financial statements starting with December 31, 2022. For insurance entities required to file audited statutory basis financial statements under the Model Audit Rule, the requirement would have been effective for audited financial statements as of December 31, 2023. IPs felt it would be clearer from the auditor’s perspective if the GAAP guidance was addressed by statutory accounting.
| Reference # | Subject | Disposition |
|---|---|---|
| INT 21-04T | Scottish Re Life Reinsurance Liquidation Questions. | Adopted with December 31, 2023 effective date. |
This INT applies to the reporting of amounts receivable from the liquidation of Scottish Re. The liquidation affects approximately 120 companies. Prior to adoption, revisions were discussed and made. All companies affected should review the INT carefully for applicability to their accounting and reporting. The INT is effective beginning with year-end 2023 reporting. As a brief summary, the INT covers the following:
- Accounting and reporting of reinsurance recoverables from Scottish Re only, generally following the guidelines established in SSAP No. 61R – Life, Deposit-Type and Accident and Health Reinsurance.
- Reporting entities should not be establishing valuation allowances. Except in rare instances, valuation allowances are not used in statutory accounting. Instead, SSAP No. 61R requires impairment analysis of uncollectible reinsurance amounts, with impaired assets being written off through a charge to the income statement using the same accounts that established the reinsurance recoverables.
- The liquidation order should result in impairment analysis of all amounts recoverable from Scottish Re, with a write-off of amounts not expected to be recovered. Further impairment analysis should be conducted at every subsequent reporting date.
- The liquidation order results in a commutation and recapture of business for the ceding company. Therefore, the ceding company removes balances through the schedules and exhibits originally reported. No reserve credit or contra-liabilities are reported, reinsurance reserve credits are removed, and gains or losses are reported in the income statement.
- Preliminary information indicates there will be an amount receivable for paid claims incurred prior to the reinsurance contract cancellation. Any such amount is to be reported on the Assets Page, Line 16.1 – Amount Recoverable from Reinsurers. Recoverable amounts from paid claims incurred prior to the contract cancellation which are not in dispute and reported on Assets Page, Line 16.1 are admitted after impairment review.
- Any other amounts recoverable from the Scottish Re estate for claims incurred before the contract cancellation and unpaid as of the reporting date are to be reported on the Asset Page, Line 16.3 – Other Amounts Receivable Under Reinsurance Contracts. Other amounts recoverable that are secured by assets in a compliant trust and are not in dispute can be admitted if the collateral is sufficient to cover the amounts. Other amounts in dispute or not secured by collateral in a trust are nonadmitted until received.
- After impairing recoverables, any other amount expected to be recovered from the estate should be reported on the Asset Page, Line 25 – Aggregate write-ins for other than invested assets.
- If the ceding company owes amounts to the Scottish Re estate, the amounts are reported on the Liabilities Page, Line 9.3 – Other Amounts Payable on Reinsurance. The INT requires the separation of reinsurance payables from reinsurance recoverables.
- Note to Financials disclosure for commutation, uncollectible reinsurance, and any other applicable reinsurance disclosures are required. In addition, further detailed disclosure is required to obtain an understanding of the impact of the Scottish Re liquidation on the reporting entity. Those disclosures are listed in the INT.
| Reference # | Subject | Disposition |
|---|---|---|
| 2024-01 | Revisions to SSAP No. 26R – Bonds regarding debt securities issued by funds. | Exposed for comment through February 9, 2024. |
SAPWG received two referrals from the Valuation Analysis Working Group related to life reinsurance and instructed NAIC staff to develop agenda items for future discussion.
Via a January 31, 2024 email, SAPWG re-exposed for comment item 2022-14 regarding new market tax credits. The comment period ended February 9, 2024. This proposal replaces the previous exposure which occurred during the NAIC Fall National Meeting. The decision to go with a shorter-than-usual comment period will allow the Working Group to consider adoption at the upcoming NAIC Spring National Meeting. The new exposure can be found on SAPWG’s webpage.
Property Risk-Based Capital (PRBC) Working Group and Catastrophe Risk Subgroup – January 16, 2024 via email
The Working Group and Subgroup released the 2023 U.S. and non-U.S. Catastrophe Event List for a seven-day comment period ending January 23, 2024.
Group Capital Calculation Working Group – January 22, 2024 via email
On January 22, the Working Group exposed for comment the ACLI GCC Scalar Calibration Cover Letter and the ACLI GCC Scalars Calibration Reports. The comment deadline ends February 21, 2024. Both documents can be found on the Working Group’s webpage.
Life RBC Working Group – January 25, 2024 and January 31, 2024 via email
The meeting began with a presentation from the American Council of Life Insurers (ACLI) on a proposal (2024-0-L) for changes to the handling of repurchase agreements (repos) in the Life RBC formula. The revision would reduce the RBC C-0 factor for repos to 0.2% for programs that meet “conforming program criteria.” Identification of the conforming programs would occur through the General Interrogatories and the Notes to Financials, both of which also would be revised in the annual statement. The Working Group’s chair asked if it might be possible to change Schedule DL in the annual statement to accommodate new needed reporting and suggested that option be part of the comments submitted. The proposal was exposed for comment through February 26, 2024. SAPWG NAIC staff added that SAPWG would like to have the opportunity to revise any affected SSAPs and annual statement reporting formats prior to any changes to the Life RBC. Accordingly, a referral was sent to SAPWG.
The discussion then changed to a proposal (2024-04-L) to add a line of reporting to the calculation of the Total Adjusted Capital within the formula. The new reporting would address non-admitted insurance affiliates. The proposed addition is actually a clean-up issue from proposal 2022-09-CA that has previously been adopted. For 2023 reporting, companies will need to include this amount by reporting it in an existing line. The proposal would correct that situation beginning with 2024 reporting. The proposal was exposed for comment through February 26, 2024.
A third proposal (2024-05-L) also was exposed for comment through February 26, 2024. This proposal would add a line to page LR009 and would report Schedule BA mortgages classified as an “all other residential” mortgage. At this time, the proposal does not include a factor to be used. The factor will be decided upon at a later date. (Factors do not have to be in place until the end of June for the same-year formula.) The implementation date suggested in the proposal is year-end 2024. All exposed documents can be found on the Working Group’s webpage.
The chair announced that a memo from SAPWG had been received regarding changes in the collateral loan reporting. SAPWG felt these changes should be reviewed by the Life RBC Working Group to consider RBC implications. Since the memo was just recently received, it was not on the agenda for this meeting but will be discussed at a future meeting. The Working Group will be meeting at the upcoming Spring National Meeting but will most likely have one more call prior to that.
On January 31, 2024, the Working Group released an additional proposal for comment. Like the other proposals, the comment deadline is February 26, 2024. Proposal 2024-07-L would make revisions to formula page LR008 to add MODCO adjustments for residual tranches. In addition, the page would be reorganized to group all of the C-1cs risks together.
Property and Casualty RBC Working Group –January 25, 2024 via email
The Working Group exposed for comment proposal 2024-01-P through February 24, 2024. The proposal is contingent upon the adoption of the Blanks Working Group changing Schedule P reporting to require 10 years of data for all lines of business. If the Blanks change is adopted, more vendor links will be added to the Property/Casualty RBC worksheets, also resulting in the deletion of some formula worksheets. The proposal can be found on the Working Group’s webpage.
Catastrophe Risk Subgroup – January 29, 2024
The meeting began with updates on the severe convective storm impact analysis, the wildfire peril impact analysis, and the work of the Geographic Concentration Ad Hoc Subgroup. The Subgroup then exposed proposal 2023-17-CR for a comment period ending February 28, 2024. This proposal originates from the Solvency Workstream of the Climate and Resiliency Task Force. The additions would not be used in the official calculation of a company’s RBC but would collect data for the development of climate scenario analysis. Through its work, the Solvency Workstream learned that commercial catastrophe modelers have products known as “Climate Conditioned Catalogs” that reflect the adjusted frequency and severity for certain time horizons for catastrophic perils. When compared with existing catastrophe RBC data, these Catalogs would provide an estimate of climate change for hurricane and wildfire. It is anticipated that regulators could then use that information when conversing with insurers that may have a greater degree of risk levels for these perils. Attendees of the meeting were reminded that the Property and Casualty RBC Working Group had previously exposed for comment a referral from the Reinsurance Task Force proposing the addition of a series of interrogatories requesting detailed information on a company’s catastrophe risk reinsurance program for all natural catastrophe perils, not just earthquake, hurricane, and wildfire. With the comment period ending January 30, it is expected that discussions on this proposal will take place shortly.
Capital Adequacy Task Force – January 31, 2024
The Task Force adopted the 2023 U.S. and non-U.S. Catastrophe Event List. Two proposals were released for comment. Both would be applicable to the Property/Casualty RBC as well as the Health RBC. Proposal 2024-02-CA would add reporting of residual tranches to both formulas. (The Life/Fraternal RBC Working Group had already exposed a corresponding proposal.) Proposal 2024-06-CA addresses repurchase agreements and mimics the current Life RBC proposal (see discussion above). Both proposals specify implementation for 2024 RBC reporting; however, 2024-06-CA does indicate implementation may be delayed until 2025. The exposure period ends March 2, 2024.
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