October was one of those months with little activity at the beginning of the month but ramping up toward the end of the month. The month-end increase in activity was most likely groups getting ready for the upcoming NAIC Fall National Meeting in November.
Life Risk-Based Capital (RBC) Working Group – October 4, 2023
The sole purpose of this meeting was to discuss a proposal that would eventually add a data-captured general interrogatory to the Life/Fraternal Annual Statement. The new general interrogatory would provide data to be used in the C-2 section of the Life/Fraternal RBC. The proposal will now be discussed and possibly exposed for comment at the next Blanks Working Group meeting. The Life RBC Working Group announced it will meet in November.
Capital Adequacy Task Force (CATF) – October 11, 2023
The first order of business was the adoption of 2024 goals. The only material change from last year was the addition of goals for the Generator of Economic Scenarios Subgroup (GOES), a joint subgroup of the Life RBC Working Group and the Life Actuarial Task Force. The CATF then moved to the adoption of revisions to its procedures, which had previously been exposed for comment. Revisions to the procedures clarify the submission of a proposal to the Task Force, or any of its Working Groups, must contain a completed proposal form and a mock-up of what the proposed changes would look like. Also emphasized are submission deadlines for possible inclusion in the current-year RBC formulas, although revised procedures do allow more time for submission of comments and proposals than has been available in the past. The Task Force received updates from the three Risk Evaluation Ad Hoc Subgroups covering the RBC purposes and guidelines, asset concentration, and geographic concentration. The Task Force exposed for comment a referral from the Statutory Accounting Principles Working Group (SAPWG) regarding a Schedule BA proposal for non-bond debt securities. The referral was exposed for a 33-day comment period ending November 13. Proposal 2023-12-CA also was exposed through November 13. This proposal would correct the reporting of Column 13 of the affiliated investments worksheet in the Health RBC and Property/Casualty PRBC formulas to indicate both preferred and common stock should be included. The Task Force members were then asked to think about what treatment would be appropriate for the reporting of affiliated investments where the reporting entity neglected to indicate an affiliate type for a listed investment. One suggestion was for the investment to default to the same treatment as a noninsurance entity. Suggestions should be sent to the Task Force by the end of November.
RBC Investment Risk and Evaluation Working Group (RBCIREWG) – October 17, 2023
The discussion of the American Academy of Actuaries’ (Academy) presentation on principles for structured securities RBC was continued during this meeting. The actual presentation occurred during an earlier meeting. At the request of the Working Group, the Academy has been researching possible approaches to the handling of collateralized loan obligations and maybe more broadly to all asset-backed securities. The Academy’s presentation had introduced the development of seven candidate-principles to be considered by regulators. After a brief review of each principle, regulators decided whether to apply the principle, reject the principle, and/or revise the wording of the principle. The Working Group asked to have several principles reworded. These revisions emphasized the cognitive differences between actuaries and regulators on certain topics. One of the concepts that regulars seem to be wrestling with, which makes the Academy’s job harder, is the concept that RBC is industry specific, not company specific. RBC was meant to be used with other regulatory tools to bring regulator analysis to a company level. The goal of the Working Group is to decide how to move forward at the upcoming NAIC Fall National Meeting.
Statutory Accounting Principles Working Group – October 23, 2023
The Working Group took the following action.
Reference # | Subject | Disposition |
|---|---|---|
| 2023-18 | Adopts with modifications Accounting Standards Update (ASU) 2016-19, Technical Corrections and Improvements. Affects SSAP Nos. 5R, 92, 102, and 103R. | Adopted effective immediately. |
| 2023-19 | Rejects ASU 2018-09, Codification Improvements, as not applicable to statutory accounting. | Adopted effective immediately. |
| 2023-20 | Rejects ASU 2020-10, Codification Improvements, as not applicable to statutory accounting. | Adopted effective immediately. |
| 2023-21 | Removal of transition guidance from SSAP Nos. 92, Postretirement Benefits Other Than Pensions, and 102, Pensions, as the 10-year transition period has passed. | Adopted effective immediately. |
| 2022-11 | Revisions to SSAP No. 21R, Other Admitted Assets (SSAP No. 21R), outline the requirements for admissibility of pledged assets as collateral for loans. | Adopted effective immediately. |
The above item came about because of inconsistencies between SSAP No. 20, Nonadmitted Assets and SSAP No. 21R, Other Admitted Assets regarding the admissibility of pledged assets as collateral for loans. Although it was decided that the underlying collateral had to qualify as an admitted asset for the collateral loan to be admitted, there was some concern over the valuation of collateral assets subject to SSAP No. 48, Joint Ventures, Partnerships and Limited Liability Companies and SSAP No. 97, Investments in Subsidiary, Controlled and Affiliated Entities. These types of investments must undergo an annual audit to qualify as admitted; therefore, transition questions about the timing of the first audit of the collateral arose. Revisions to SSAP No. 21R indicate that these investments can be valued at fair value as long as documentation is kept and made available to regulators supporting the reasonableness of the fair value. The decision also was made that for year-end 2023 valuation, the 2023 audit of the collateral could occur in 2024. However, thereafter an annual audit is required to be obtained for the reporting year in which the collateral was pledged and annually. The annual audit lag is to be consistent from year to year.
Reference # | Subject | Disposition |
|---|---|---|
| INT 23-04T | Under SSAP No. 61R, Life, Deposit-Type, and Accident and Health Reinsurance (SSAP No. 61R), provides guidance for ceding companies with a life reinsurance counterparty in liquidation. | Exposed for comment through November 15. |
The final item of discussion was the introduction of INT 23-04T: Life Reinsurance Liquidation Questions. Although the liquidation of life reinsurers is uncommon, a liquidation order occurred September 30 of this year. Consequently, several questions have arisen on how to handle the accounting and reporting for liquidations. The guidance is meant to be generic in nature, as is most statutory guidance, and not company specific. The INT addresses four main areas.
- Commutation or recapture of a life reinsurance contract – Guidance found in SSAP No. 61R regarding the commutation of the contract if a liquidation order cancels a life reinsurance contract on a cut-off basis should be followed.
- Impairment of reinsurance recoverables – The main question around this issue was whether a ceding insurer has a choice of establishing a valuation allowance or applying impairment guidance. SSAP No. 61R requires impairment analysis of uncollectible reinsurance amounts per SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets. No valuation allowances are used in statutory accounting. In addition, the impairment analysis should be updated at every reporting date.
- Reporting of reinsurance recoverables – No reinsurance credits for a reinsurer in liquidation will be allowed. Although Schedule S will still be completed and list the contracts with the reinsurer being liquidated and show possible recoveries, no credit for reinsurance will be allowed, including reserve credits. If there are expected amounts recoverable for paid claims prior to the contract cancellation, they will be reported on the Asset Page, Line 16.1 – Amounts Recoverable from Reinsurers in the financial statements. Other amounts receivable are to be reported on Line 16.3 – Other Amounts Receivable Under Reinsurance Contracts. If the ceding entity owes money under the contract, it will be reported on the Liabilities Page, Line 9.3 – Other Amounts Payable on Reinsurance.
- Admissibility of reinsurance recoverables – During the meeting, the Working Group decided to revise the language covering this topic. All such recoverables will be nonadmitted.
- Disclosure – All current SSAP No. 61R reinsurance disclosures will be required. In addition, information necessary for an understanding of the impact of the reinsurance counterparties in liquidation, including the status of any collateral, is to be included.
The INT is not final yet. A few revisions were made and approved by the Working Group before the INT was released for comment. The goal is to adopt the INT at the upcoming NAIC National Meeting.
Financial Conditions Committee – October 25, 2023
The Committee began by adopting its 2024 charges and then moved to the adoption of revisions to the Property and Casualty Insurance Guaranty Association Model Act. Most of the meeting was dedicated to the discussion of a future procedure to review comments received on the previously exposed paper, Framework for Regulation of Insurer Investments – A Holistic Review. The comments submitted were officially received and the Committee will hear from the commenters at the upcoming NAIC Fall National Meeting. The Valuation of Securities Task Force and the RBCIREWG will continue with their work on investments at the present time. The Committee plans to start holding a series of calls to further address issues covered in the paper beginning in 2024.
Reinsurance Task Force – via email October 27, 2023
The Task Force released for comment revisions to the Uniform Checklist for Reciprocal Jurisdiction Reinsurers for a 15-day comment period ending November 10. The proposed revisions add the alien number and a short question section to help clarify what information is required to be provided based regarding the filer’s specific situation.
Executive Committee and Internal Administration Subcommittee – via email October 27, 2023
These NAIC groups released for comment the proposed 2024 NAIC Budget. A budget briefing webinar is scheduled for November 1, with the public comment period ending November 17. A public hearing will then be scheduled for late November. Copies of the full 2024 budget can be found on the About Budget page of the NAIC website.
Interested Parties (IPs)
Blanks Working Group IPs have been working diligently on comments for proposal 2023-06, which would revise Schedule D – Part 1 into two different sections and create new bond reporting categories, as well as some new bond reporting information, beginning January 1, 2025. The comment period for this extensive proposal was October 12. Along with that proposal, IPs also have been crafting comments on 2023-12, which would revise the reporting to Schedule BA for debt securities that do not qualify as bonds under SSAP No. 26, Bonds and SSAP No. 43R, Asset-Backed Securities. Meanwhile, the SAPWG IPs have crafted comment letters that regarding revisions to SSAP No. 21R for debt securities not classified as bonds, INT 03-02 revisions to SSAP No. 93 and SSAP No. 94 for new market tax credits, SSAP No. 7, Asset Valuation Reserve and Interest Maintenance Reserve, Schedule BA reporting categories, short-term investments, revisions to SSAP No. 5R, Liabilities, Contingencies and Impairment of Assets, and rejection of some GAAP guidance.
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