Do-It-Yourself Checklist

NAIC Focus puts you in closer touch with current regulatory issues. Our StoneRiver liaison to the NAIC, Connie Jasper Woodroof, uses this forum to share information and insight into regulatory reporting requirements, electronic filing directives, instructions, testing specifications and much more.

to receive an email notice when new issues are posted.

Date December 6, 2010
Author Connie Jasper Woodroof
Email connie.woodroof@stoneriver.com

Do-It-Yourself Checklist

It’s here! The time we all live for. Year end. Oh come on, you know you love this process. If not, why do you subject yourself to it every year? You could always find yourself a “normal” accounting job. But if you insist on staying put, I’ll try to make the process just a little bit easier—or at least smoother—by providing a checklist of changes you will encounter for the 2010 Annual Statement.
Directions Print this off and use it for your checklist. Check the “N/A” box if the listed item does not apply to your company and go on to the next item. Check the “To Do” box if it does apply to your company and you need to plan accordingly.

All Statements
		Balance Sheet
N/A □	To Do □	A new line on the Assets page, Securities Lending Reinvested Collateral Assets, is used to report securities lending collateral reinvestment that previously was handled “off-balance sheet.” Since you will have to eventually return that collateral, a corresponding line has been established on the Liabilities page, Payable for Securities Lending. No more off-balance sheet transactions for securities lending!

		General Interrogatories
N/A □	To Do □	A new set of questions tries to ascertain whether your company has received any exemptions under the new Annual Financial Reporting Model Regulations and if the company has established the required Audit Committee per state of domicile requirements. No exceptions here; everyone checks the “To Do” box!

N/A □	To Do □	Another new set of questions asks about the collateral percentage for your securities lending programs. No securities lending programs? Move on.

		Notes to Financials
N/A □	To Do □	Everyone check the “To Do” box here! Note 1A is required to be completed by everyone even if you have nothing to reconcile. It’s an NAIC requirement and they have added a crosscheck to stress the point.

		Note 5 has undergone a lot of changes, some of which may apply to your company and others may not.

N/A □	To Do □	For those of you investing in reverse mortgages, Note 5c(3) and 5c(4) will now be data captured. Accordingly, the NAIC has clarified some of the instructions and added some examples to help you.

N/A □	To Do □	Next, let’s look at Note 5D, disclosing information for RMBSs. This Note was added last year, but only as a written requirement. This year much of the Note will be data captured. In response to the volume of questions the NAIC received about this disclosure, they have tried to clarify both the instructions and the examples provided.

N/A □	To Do □	To finalize Note 5 we have the new part 5E. This Note provides information concerning collateral received and collateral reinvested for repurchase agreements, securities lending, and dollar repurchase agreements. Examples are provided and most of this Note will be data captured.

N/A □	To Do □	Each statement has a new Note 20 for the disclosure of fair value measurements. The Note utilizes the levels currently used in GAAP Accounting: Level 1, Level 2, and Level 3. Unfortunately, in November the NAIC decided to change a reporting requirement adopted in June. The new disclosure requirement eliminates separate reporting of assets measured at fair value on a recurring basis and those measured at fair value on a nonrecurring basis. However, because the change came so late in the year, the software format for data capture could not be changed. Within the statement instructions and in the Notes Input section of the software you will see two sections to be completed—one labeled for a recurring basis and one labeled for nonrecurring basis. However, that is no longer correct. Instead, the NAIC wants companies to report the fair value measurement at the reporting date for both recurring and nonrecurring assets together using only the section marked for the recurring basis. The NAIC will post guidance on both the SAPWG and Blanks Working Group websites explaining this. Everyone will have to take action on this Note so check the “To Do” box.

N/A □	To Do □	The changes adopted for Note 9 last year are still effective for year-end 2010. The NAIC has implemented some changes to the instructions and the examples to try to eliminate the number of questions the disclosure triggered for 2009.

N/A □	To Do □	At year-end 2009, changes were implemented for the disclosure of Subsequent Events. The Note was finalized for 2010 and requires the disclosure of the date of assessment for the determination of Type I and Type II events.

N/A □	To Do □	The NAIC took an existing note, Note #30 regarding Premium Deficiency Reserves (PDR), decided to reformat it and will also now data capture the information. The new disclosure requires information regarding the liability the company carries for the PDR, the date of the reserve’s most recent valuation, and whether anticipated investment income was used to calculate the reserve. Note #30 will now be data captured. Most Property/Casualty companies and companies offering Health (A&H) coverages should be recording a PDR. If your company does not have this reserve, you might want to review the requirements for it in SSAP No. 53 (P&C) or SSAP No. 54 (individual & group A&H contracts).

		Schedule D
N/A □	To Do □	Schedule D – Parts 1, 3, 4, and 5 all contain an electronic only, state abbreviation column that is used within the bond reporting categories of US States, Territories and Possessions; US Political Subdivisions of States, Territories and Possessions; and, US Special Revenue, Special Assessment. An instructional clarification indicates that the two-digit state postal abbreviation of the state where the security was issued is to be shown in the column. Where the US issued the security (FNMA pool-back securities, for example), US should be indicated.

N/A □	To Do □	The bond collateral type codes for ABS securities have been expanded. The previous codes only included four ABS options. These have been expanded. Please review your ABSs for a possible reporting change in the type code.

		Schedule DB
N/A □	To Do □	Schedule DB and its associated Verifications are all new for 2010. The NAIC has asked that all questions regarding schedule preparation be addressed to them.

		Schedule DL (New Schedule)
N/A □	To Do □	Schedule DL – Parts 1 and 2 will appear in the 2010 Annual Statement for the first time. Beginning with the first quarter of 2011, both Parts will also appear in the Quarterly Statement. Part 1 provides a detailed listing of those reinvested securities lending assets that are reported in the aggregate on the Assets Page, Line 10. Part 2 provides a detailed listing of reinvested securities lending assets that are included in the reporting company’s investments schedules. Do not include items reported on the Assets Page, Line 10 in Part 2.

		Supplements
N/A □	To Do □	A new Health Care Supplement has been added to the statements. All companies offering A&H (Health) coverages should review the fling requirements carefully to determine applicability to their company. The filing is due April 1, 2011.

LAH/Fraternal Statements
		AVR/IMR
N/A □	To Do □	Directions for recording a realized gain/loss from a SSAP No. 43R security have been changed. Any realized gain or loss as the result of disposal and/or an OTTI is to be bifurcated between the AVR and the IMR. The credit-related portion of the gain/loss is to be recorded in the AVR, while the interest-related gain/loss is to be recorded in the IMR.

		General Interrogatories
N/A □	To Do □	Instructional changes to question 9.2 in Part 2 of the General Interrogatories incorporate guidance adopted by the Life & Health Actuarial Task Force (LHATF) for year-end 2009.

		Note to Financials
N/A □	To Do □	A new disclosure was added as Note 21H for reporting some information regarding Retained Asset Accounts (RAA). Information requested includes in force amounts as well as a aggregate reconciliation of the accounts.

N/A □	To Do □	Additional disclosures were added to Note #34. New information is required for specific Separate Accounts activities, including legally insulated assets and several reconciliations.

		Supplemental Interrogatories
N/A □	To Do □	Five new items were added to this filing list. Since not all of the filings will apply to all companies, please review the new items carefully for applicability.

		LAH/Fraternal Supplement
N/A □	To Do □	This new supplement furnishes information regarding a company’s annuities. The supplement consists of the Annuity Operations by Line of Business and the Annuity Increase in Reserves. Columnar information is provided by type of annuity. This supplement has an April 1 filing date.

Separate Accounts Statement
		General Interrogatories
N/A □	To Do □	For the first time the Separate Accounts Statement will now contain eight General Interrogatories. Some of the questions are specific to the Separate Accounts (green book), while others have already appeared in the General Accounts Statement (blue book)

Health Statement
		Actuarial Opinion
N/A □	To Do □	Several revisions to the instructions for the Actuarial Opinion were adopted for the Health Statement. There are possible exemptions for some companies; however these exemptions are not automatic, but have to be granted by the company’s state of domicile. Additionally, reporting requirements for both the Scope and the Opinion sections have been expanded.

Property/Casualty Statement
		Notes to Financials
N/A □	To Do □	Additional language has been added to Note #23 for disclosure of some Property/Casualty reinsurance agreements that are in a run-off situation.

N/A □	To Do □	During December 2009, a disclosure regarding Financial Guaranty business was added to the statement. For this year-end, the Note has been given a permanent home as Note #35. Additionally, the Note will now be data-captured.

Odds ‘n Ends
		RMBS/CMBS/ABS Securities
N/A □	To Do □	As was the case for 2009, RMBSs are still under regulatory review and subject to the same valuation methods that were put into place for last year. New factors for valuation will be available by December 27, 2010. Check the structured securities website frequently for the latest information: http://www.naic.org/index_structured_securities.htm .

N/A □	To Do □	Additionally, CMBSs are now also under regulatory review and will be subject to the same type of process as the CMBS. Factors for valuation will be available by December 27, 2010. This means the CMBS are no longer considered filing exempt (FE) securities. Check the structured securities website frequently for the latest information: http://www.naic.org/index_structured_securities.htm.

N/A □	To Do □	The procedure for the FE ABSs has also been modified. If the security’s valuation date, as furnished by the rating agencies, is more than 12 months old, the security looses its FE status. Instead, the security will need to be reported with a 5* or 6* designation, as appropriate.

With this list, several bags of your favorite candy/snacks, and two cases of your favorite beverage (non-alcoholic, of course)—you should be all set for year-end. Good luck and Happy Holidays!

Although StoneRiver, Inc. takes all reasonable steps to ensure that the information in this document is current and correct, it neither warrants nor guarantees its accuracy.
StoneRiver, Inc. does not render legal services or advice. This newsletter is not intended to substitute for legal advice, which can be rendered only by an attorney.
© 2010 StoneRiver, Inc. All rights reserved. StoneRiver is a trademark of StoneRiver, Inc.