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Date October 12, 2011
Water and Wind
Weren’t Enough to Stop the NAIC
NAIC Committees forge ahead with interim meetings
SAP Working Group discusses January changes
This year we have discovered that not even a hurricane halts the work of the NAIC. Hurricane Irene managed to cancel the “physical” August NAIC National Meeting, but only slightly delayed the work that would have been accomplished in Philadelphia. The NAIC immediately bounced back by scheduling a series of conference calls and interim meetings. So let’s bring you up-to-date on activities as we head into the November National meeting.
Blanks Working Group
In what was probably the shortest meeting in history, the Blank Working Group held a 13 minute conference call on September 7. During that time one proposal was adopted that will be effective for first quarter of 2012, some editorial changes were adopted for 2011 and two proposals were exposed for comment with further discussion scheduled for November. Short but productive!
Emerging Issues Accounting Working Group (EIAWG)
Statutory Accounting Principles Working Group (SAPWG)
These two groups made a very quick recovery after the meeting cancelation by scheduling a conference call for August 30. During the 2-hour call, it was business as usual. Complete details of the adopted items have been posted at http://www.naic.org/committees_e_app_manual_updates.htm.
One item deserves special attention; the SAPWG’s adoption of SSAP No. 101 – Income Taxes. This new SSAP is a replacement for both SSAP Nos. 10 and 10R. With SSAP No. 10R due to expire after year-end 2011 reporting, regulators and industry had been diligently working all summer on a replacement. It was adopted during the conference call despite a last minute attempt by Virginia to block the adoption, stating they would prefer to see SSAP No. 10R sunset and a subsequent return to SSAP No. 10. Two of the thirteen members of the Working Group voted against adoption.
The Accounting Practices and Procedures Task Force also voted for the adoption of SSAP No. 101 during a September 8 call, with 5 of the 37 members voting against adoption. Then on September 19, the Financial Conditions (E) Committee on also put their approval on SSAP 101. The final vote by the Executive/Plenary is expected during the November meeting. At this point, most everyone assumes 101 will be adopted, but one can never tell. Remember, however, if adopted, the implementation for SSAP No. 101 is scheduled for January 1, 2012. SSAP No. 10R will still be utilized for this year-end reporting.
Other items that were adopted included Issue Paper 141- Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This paper will now be converted into a SSAP, and when adopted it is expected to replace SSAP No.91.
There were several adopted revisions that moved guidance from one SSAP to another and did not alter existing statutory accounting guidance. This is part of an ongoing effort to reflect substantive changes to an SSAP in one document and not as several SSAPs to be “pieced” together to obtain final, complete guidance.
Several items were exposed for comment in August to be discussed in November. They can be found at http://www.naic.org/committees_e_app_sapwg.htm and include revisions to SSAP No. 5R, SSAP No. 100, and 43R as well as Issue Paper 129 on Shared Based Payments.
The EAIWG exposed only one item for comment which would move guidance currently included in Interpretations (INTs) into the appropriate SSAPs. Complete details can be found at http://www.naic.org/committees_e_app_eaiwg.htm.
Many have been wondering the status of the re-writing of the SSAPs providing guidance for pensions and other postretirement benefits. Although “in the works” for quite some time now, that project had taken a backseat to the writing of SSAP No. 101. I am happy to report that SAPWG held conference call at the end of September and consequently re-exposed SSAP Nos. 92 and 102 for comment. They both can be found on the SAPWG website.
The agenda for both groups’ November Meeting have been posted. EAIWG should easily get through their agenda in a short amount of time. However, the SAPWG agenda looks a little daunting. My guess is some of the items will have to be handled after the November Meeting via conference call.
StoneRiver Fall Update Seminars (NAIC Updates)
Get ready for year-end with a web-based regulatory update from StoneRiver. These three-hour summaries are absolutely packed with information on NAIC Updates and Blank changes. Why not connect in a conference room and educate your entire team? Read more about NAIC Updates & Blank Changes for Life, Health and P&C on November 29, 30, and December 1.
Reinsurance Task Force
In July this group released for comment amendments to the Credit for Reinsurance Models which will, among other things, create a new category of “certified reinsurer.” To facilitate what they hoped would be the finalization and adoption of the revised Models, an interim meeting was scheduled for September 19. After making some final compromises with industry, the new Models were adopted. The same day, the Financial Conditions (E) Committee also approved the Models, moving them both up the NAIC committee ladder for more discussion, possibly at the November National Meeting. In addition, this group will be reviewing the activities of the IAIS Subcommittee on Reinsurance and Other Forms of Risk Transfer.
Valuation of Securities Task Force (VOSTF)
The VOSTF has conducted several conference calls to try to cover all of their original agenda. The first call, held on September 1, handled several issues. New government lists for the Purposes and Procedures manual were adopted, as well as new instructions to determine which securities are to be reported as US Governments in statement preparation. New administrative symbols for the VOS Product were adopted to designate RMBS and CMBS within the database and several staff reports were received.
The call discussion centered upon the modified filing exempt (FE) process being applied to loan-backed and structured securities (LBaSS) that are not being modeled. The Task Force had been asked by various industry representatives to reverse its decision with respect to the modified FE process being applied to LBaSS, since those securities had never officially been put under regulatory control and the process was producing some unexpected inconsistencies among insurers. During the discussion it was suggested that the modified FE process should be suspended while further study was conducted in an effort to try to eliminate the inconsistencies. New York submitted a proposal that they thought would address some of industry’s concerns. VOSTF accepted the proposal and exposed it for a short comment period for further discussion.
On September 13, a second conference call was held. The purpose of this call was to receive comments on the New York proposal and to make a decision on how to proceed with the modified FE process for LBaSS. Despite the fact that industry and several regulators on the group felt the New York proposal did not address enough of their concerns, the Task Force voted to adopt the New York proposal, to continue the modified FE process, and to form a subgroup to study the problem(s) further. Since that time, the subgroup has met and is scheduled to make a recommendation to the VOSTF shortly.
In the meantime, there are several other projects that are ongoing for the VOSTF, some of which may come to fruition at the November meeting, while others are longer term in nature. The Task Force may consider removing RMBS and CMBS from regulatory review, making the modeling process a permanent method of their valuation. Other topics likely to be discussed include an NAIC staff proposal to recalibrate the NAIC credit risk assessment framework (the way NAIC designations are “converted” from rating agency ratings) and a report on the impact of recent regulatory changes on the money market fund market.
Group Solvency Issues Working Group (GSIWG)
The Working Group has been holding regular conference calls all summer long and held their replacement conference call on August 31st for two hours. Additional calls have been held since. The group is currently working on the NAIC ORSA Guidance Manual (ORSA – Own Risk Solvency Assessment). Their goal is to continue working on the manual through a series of conferences call in October, exposing another draft for comment by October 21, and then adopting the manual at the NAIC National Meeting on November 2.
Overall, the NAIC committees did a great job of scrambling to get work completed that would have been accomplished at the canceled August meeting. Even before the cancelation, the time between the Summer meeting and the Fall meeting in November was relatively short, but it looks like most everything is back on track.
Solvency Modernization Initiative (SMI)
Various parts of the NAIC’s Initiative are well underway, as one can see by reviewing the GSIWG’s work as well as that of the Reinsurance Task Force. In addition, the November Meeting will include a discussion on a paper regarding the US regulatory mission in US financial regulation by the SMI Task Force. The Principles-Based Reserving (PBR) Working Group will bring the Task Force up to date on a PBR impact study, the potential impact of PBR for the life industry, and future work that will be needed to keep PBR calibrated and consistent.
With a little luck, the November meeting will be non-controversial and without surprises! We will let you know what happened in the next NAIC Focus. And with year-end quickly approaching, be sure to check out my lDecember NAIC Focus for a checklist that will make your process easier. In the meantime, live long and prosper!
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About Connie Jasper Woodroof
Connie is a seasoned statutory accountant and educator who serves at the NAIC Liaison for StoneRiver. She regularly attends NAIC meetings to stay abreast of current and anticipated changes in regulatory reporting. Her long-range view and interpretation of the trends is invaluable to clients in applying new requirements and preparing for anticipated changes.
- Connie is active with IASA, having recently served two years as their VP of Education. She is a frequent guest speaker at IASA Chapter meetings, and she is a former IASA Volunteer of the Year.
- Prior to joining StoneRiver, Connie was the Financial Reporting Education Coordinator for the NAIC. She came to the NAIC with ten years of experience preparing annual statements in both the Life and P&C industries. Woodroof earned her bachelor's degree in accounting from Ball State University in Muncie, Indiana and holds the designation of FLMI, and a Masters Degree in General Psychology from the University of the Rockies, Colorado Springs, Colorado.
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Information is subject to change. Printed in U.S.A. 10/11