Date: December 19, 2008
Author: Connie Jasper Woodroof
Email: Connie.Woodroof@fiserv.com
As I starting writing this edition of the NAIC Focus, I received an email from the NAIC informing us that some of the meeting summaries were available on line. It was a nice, neat little newsletter with several pieces of information, including the number of attendees at the Winter National Meeting (December meeting) held in Washington, DC. You know, I would have sworn we were in Grapevine, Texas!
With that comment, I am going to begin this Focus with a few items not normally discussed.
Meeting Summaries
As part of the NAIC National Meetings, the NAIC has always published detailed meeting minutes available to those who attend the meetings or pay to have access to the minutes. It usually takes about two weeks to get those minutes posted to the website. Lately, however, the NAIC has starting making meeting summaries available shortly after the end of the National Conference. The summaries are not as detailed as the minutes, but do provide a nice oversight of meeting activity. Hopefully the summaries are a little more accurate than the email mentioned above! For those of you that are interested, the December summaries can be found at http://www.naic.org/meetings0812/summaries.htm.
Capital and Surplus Relief Working Group
Another new committee! This group reports directly to the Executive Committee and was formed to quickly address a proposal submitted by the American Council of Life Insurers (ACLI) a letter dated 11/11/2008. The ACLI is suggesting that under the current economic environment, reserve and capital relieve should be provided for certain life insurance policies and variable annuity contracts. The four outlined areas for immediate attention are:
1. life insurance reserves
2. annuity reserves and risk-based capital
3. risk-based capital for investments
4. accounting for deferred tax assets
Many of the specific proposals pinpoint areas that the ACLI feels will be eventually addressed at some future date and in particular through the adoption of Principals Based Reserving (PBR) for the Life companies. The ACLI suggested that the changes be adopted in time for year-end 2008, but they will also continue to look at other measures that can be taken for 2009.
No direct action was taken at the December meeting. Instead this group asked several other NAIC technical groups for their opinions on specific parts of the proposal. On December 17, those opinions were exposed for comment through December 26. The technical group responses and a copy of the ACLI letter can be found at http://www.naic.org/committees_ex_capital_surplus_relief.htm,
Joint Executive Committee/Plenary
It is official; reinsurance reform is moving forward! This group was the last voting forum needed to approve the reform that the Reinsurance Task Force has been working on for the last two years. It was not a unanimous vote, but close; only five states voted against it. This vote was immediately followed by a vote to form the new Reinsurance Supervision Review Department (RSRD) as outlined in the proposal. That, in turn, means the NAIC will have to solicit help from the federal government for the formation of the RSRD. The NAIC will fight to keep the RSRD as part of their organization, but the Feds might have other ideas. In the meantime, the Reinsurance Task Force goes back to work to come up with an implementation program. Some reform implementation could happen as early as 2009.
Climate Change and Global Warming Task Force
Although I have mentioned this group in the past, they are not on the normal agenda of the Focus. Since my last report, this group has slightly changed direction again. After releasing a white paper entitled The Potential Impact of Climate Change on Insurance Regulation, the Task Force has been trying to convince insurers that certain disclosures regarding climate issues are needed in the Annual Statement. For the most part, insurers felt that if the disclosures are to be made, the statement was not the proper forum. At the December meeting, the Task Force decided to add the disclosures as a separate survey for insurers and reduced the number of questions to be addressed. If adopted, the survey will be filed with a company’s state of domicile and the holding company’s state (where applicable) and all responses will be made public. The survey was released for a very short public comment period ending 12/15/2008. A conference call then occurred on 12/17/2008. Unfortunately, I was not able to participate in that call and do not know the outcome. A copy of the survey can be found at http://www.naic.org/committees_ex_climate_risk_disclosure.htm.
And now a return to our regularly scheduled programming.
Blanks Working Group
The agenda for this group was relatively short. Three agenda items were adopted; all for future implementation. Eleven other blanks proposals were exposed for comment to be further discussed at the March meeting. Details can be found at http://www.naic.org/committees_e_app_blanks.htm.
The group announced the addition of new disclosures for the 2008 Notes to Financials. The new disclosures are required because of changes to accounting adopted by the Statutory Accounting Principles Working Group. The additional disclosures are for repurchase agreements (Notes 5 and 17), Federal Home Loan Bank (FHLB) funding agreements (Note 20) and intercompany pooling (Note 25). Disclosure requirements should be posted as a revision to the instructions shortly at this website http://www.naic.org/committees_e_app_blanks_08_instructions_revisions.htm.
Gloria Glover, who has been chairing the Blanks group for several years, announced she is stepping down from that position. She will, however, still remain active on the Blanks Working Group. Jake Garn, chief examiner for the state of Utah, will be taking her place.
Food for thought: Beginning in 2010, the NAIC is reducing the number of national meetings held each year from four to three. This will necessitate a rewriting of the current Blanks timeline and procedures for the adoption and implementation of blanks and instructional changes.
Emerging Accounting Issues Working Group
Action was deferred on the balance sheet presentation of Federal Home Loan Bank (FHLB) funding agreements. EITF 04-10 was rejected as not applicable to statutory accounting and INT 08-10, Contractual Terms of Investments and Investors Intent, was adopted as final. No new items were exposed for comment.
Statutory Accounting Principles Working Group
As is normal, the agenda for this meeting was quite lengthy.
SSAP 91R – Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, was adopted and is effective 1/1/2009.
Issue Papers 132, Accounting for Pensions, and 133, Accounting for Postretirement Benefits Other Than Pensions, were adopted as final. Staff was instructed to convert both papers to draft SSAPs which will then be re-exposed for further comment. Additionally, it was announced that a new implantation date of 1/1/2011 is being considered and documentation will most likely include 10-year transition guidance.
SSAP 48 was once again revised and still has more revisions pending. The original revision this year was adopted at the June meeting. At the December meeting some language changes were adopted to paragraph 8. The new language is for clarification and does not change any of the items adopted earlier in June. Re-exposed items include the addition of language related to the initial admission of an asset (same language as used in SSAP 97) and the removal of commissioner approval for this treatment.
Just when you thought we were finished with SSAP 98, Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, An Amendment of SSAP No. 43 – Loan-backed and Structured Securities, it pops back up on the agenda. Originally deferred at the September meeting, the SSAP was adopted via conference call in November. In December, the group decided to defer reporting the adoption of this guidance to the Accounting Practices and Procedures Task Force, which in essence slows down the entire adoption process of the SSAP. The deferral was approved to allow for a review of the pending SEC study on fair value which is due to Congress by 1/02/2009. A conference call will be scheduled following the release of that report. In the meantime, companies can still impair securities to fair value for this year end, if management has determined that is the appropriate action to take.
A proposal submitted by the ACLI was exposed for further comment. This proposal would change the way Life companies account for their Deferred Premium Asset and Unearned Premium Reserve. Update: A conference call was then held on December 18 for further discussion and voting. It was a draw! The group voted against adopting a regulator-modified version of the proposal and then turned around and voted against the ACLI proposal as well. Both votes were close. So now it is back to the drawing board, as the one thing everyone did agree upon is something needs to be done. At this point SAPWG is going to once again reach out to the Life and Health Actuarial Task Force (LHATF) and see if the two groups can come up with a remedy.
Changes to the Preamble of the Accounting Practices and Procedures Manual, Section IV. Statutory Hierarchy were adopted. The changes adopt, with modification, FAS 162, which eliminate a commitment to review FAS 133 Implementation issues and require review of all FSPs on a prospective basis.
SSAPs 52, Deposit-Type Contracts and 15, Debt and Holding Company Obligations were revised to create consistent disclosure requirements for FHLB funding agreements. (See Blanks discussion above.)
Several other items were also released for comment. All items that were either re-exposed or exposed for comment are already available for review at http://www.naic.org/committees_e_app_sapwg.htm.
Capital Adequacy Task Force
The Task Force released the risk retention proposal for a 45-day comment period. This would add a RBC requirement for risk retention groups, however, it would be used as a financial analysis tool, not as a regulatory tool.
For the Health RBC formula, the group adopted a trend test to be added to in 2009. The HRBC working group continues to work on the issues of stop loss business and Medicare Part D factors.
The Property RBC Working Group did not meet at the December meeting, but did conduct conference calls since the September meeting. The group continues to discuss future adjustments to the underwriting risk factors, the treatment of the new Warranty line of business and catastrophe risk.
The Life RBC Working Group will be exposing the C-3 Phase III proposal when all documentation is complete. The group is also considering changes to the mortgage experience adjustment, derivatives hedging and derivatives collateral.
Valuation of Securities Task Force
There was not a lot of action in this meeting. The Task Force did release a proposal to expand common stock filing exemption (FE) status to stocks traded on all stock exchanges (except for affiliated stock). Reports were heard from the Invested Assets Working Group and the Derivatives Market Study Working Group and the SVO Research agenda was released for comment. Two items were tabled during the meeting; a proposal for change the reporting of investments under regulatory review and the dropping of DBRS as an ARO.
Conning Asset Management asked if securities guaranteed by the FDIC under the newly adopted Temporary Liquidity Guaranty Program should now be classified as U.S. Government securities. The reply was no. Although the securities are now government guaranteed, payment under that guaranty is contingent on filing of a claim and supporting documentation. Therefore SVO staff felt the guarantee should not be treated as a credit substitution device. SVO staff did remind everyone, however, that the FDIC guarantee did allow the securities to be highly rated and were therefore eligible for filing exemption status.
The VOS Task Force continues to work on the valuing of life settlement contracts and announced that it may become involved in the review of reinsurance collateral.
Meeting Addendum
Directly following the December meeting, several conference calls were held by various groups on various topics. But according to the NAIC meetings and events schedule, there are no more calls or meetings scheduled for this year. The 2008 NAIC meeting season is officially over!
Happy Holidays everyone!