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2014 PAMIC Presentation Annual Statement and Statutory Accounting Update Speaker Scott 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 Adopted Changes to the P/C 2014 Annual Statement, Instructions and Supplements 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 5H – Restricted Assets - FHLB 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 Finance Investments (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 date Discussion 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 Note 5I – Investments - WCFI 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 and Structured Securities and SSAP No. 43R, Loan-backed and Structured Securities (Ref # 2014-02) Summary of Issue: • Non-substantive change to create new disclosures for Structured Notes Discussion 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 Total Actual Cost Fair Value Book/Adjusted Carrying Value MortgageReferenced Security(Y/N) 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 & and those already listed in Part 2 3 new columns Applies to all Directors other than full-time officers & and those already listed in Part 2 Adopted Changes to the 2015 Quarterly Statement 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 Other Adopted Accounting Changes Effective in 2014 SSAP No. 26, Bonds, Excluding Loan-Backed and Structured 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 date Discussion 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 Corrections of Errors/SSAP No. 68, Business Combinations and Goodwill (Ref # 2013-29) Summary of Issue: • Non-substantive change which clarifies the footnote for mergers • January 1, 2014 effective date Discussion 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 Derivative Instruments 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 date Discussion 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 Other Items to Monitor Corporate Governance Annual Filing Act/Model Regulation 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: 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 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)