Top Ten List for Year-End

Date: November 10, 2008
Author: Connie Jasper Woodroof
Email: Connie.Woodroof@fiserv.com

Is your third quarter statement done? Whether it is or not, now is the time to start planning for your company’s year-end. To help you, I have put together the Top Ten things to remember or do to make your year-end smoother. (Thanks to David Letterman, a fellow Hoosier and Ball State University alumnus, for making the Top Ten list so popular.)

A word of warning: Most of the items on my list could not be limited to one or two sentences.

10. Remember, the NAIC no longer accepts printed copies of any of the required annual filings. Because of this, some of you will see new items listed on the Supplemental Interrogatories page that had not previously been there. Don’t panic! These are not new filings, but rather filings that had not previously been part of the electronic filing and now are.

9. Don’t forget to review the risk-based capital (RBC) formula for changes. Many of us spend a lot of time each year trying to keep up with statement changes only to get blind-sided when trying to complete the RBC. This year, for example, all the formulas separate security lending transactions into two different categories, with different RBC treatments for each category. In addition, companies participating in securities lending programs where the collateral is kept “off-balance sheet” will incur additional RBC charges for that collateral. The Property/Casualty formula has new Underwriting Risk factors; the first update to those factors since the inception of the formula. The Life formula now provides credit for trusteed collateral for authorized reinsurers and, of course, there are some more changes to the ever popular C-3 Risk. The Health formula this year has a different treatment for vision coverage and differentiates between stand-alone Medicare Part D and Medicare Part D offered through an Advantage program.

8. Schedule a vacation for two weeks beginning any time after December 26 and ending sometime before March 1. Ok, so you probably won’t get it, but it provides you with an opportunity to give your boss a good laugh. It may be the last one you hear for a while!

7. Review the 2008 Annual Statement Instructions. It is easy to spot reporting format changes within the statement, but instructional changes are a different matter. Many instructional changes are independent of format changes. In addition, the NAIC labels many of these instructional changes as “editorial.” This means, in the eyes of the NAIC, the instructional revisions were needed to correct typos or for clarification of existing reporting. But remember, if your company did not interpret the original instructions the same way the NAIC does, then that clarifying language results in an accounting or reporting change for you.

6 Property/Casualty companies begin reporting Warranty business as a separate line of business this year. A definition of Warranty can be found in the Appendix to the instructions. (A few other definitions were tweaked a bit, so check them all.) Of course, adding a new line of business affects a lot of different parts of the statement, but the good news is the addition is prospective. That means no restating of any prior-year information is necessary—including Schedule P! Other things to watch out for in the Property/Casualty statement: a sub-line for reporting Workers’ Compensation on the State Page and the IEE; an new Actuarial Opinion requirement for intercompany pooling arrangements; and a new Schedule P Interrogatory #1. Again, this list is not all inclusive.

5. Make sure you have up-to-date photos of all those that are important in your life prominently displayed in your work area. This serves two purposes: 1) Helps you to remember what they look like, especially since you won’t see much of them at year-end; 2) Use them for guilt; when the boss comes by to see if you can stay “just a little bit longer tonight,” gaze longingly at the pictures, let out a long sigh and say “yeah, sure.”

4. No, there are not pages missing from the middle of your statement! This is the same move that happened in the quarterlies; all of the summary investment pages are now located at the back of the book, after the supplemental interrogatories page. Not only was their order changed, but all of the Verifications were reformatted and, as with the quarterly, a new verification was added for Schedule E – Part 2. Don’t miss the new footnote on Schedule D – Part 1A – Section 1. There was also an instructional change for the Summary Investment Schedule regarding the reporting of mutual funds.

3. All of the rest of the investment schedules have changes, too. There are new parts (Part 2 for both Schedules B and BA), renumbering of parts (again, Schedules B and BA), new columns on most all of the investment schedules, new line numbering, new codes to use in the code column, etc. So not only should you review the format changes carefully, but sure to look at the revised instructions. Remember, some of the instructional changes may appear on the Investment Schedules General Instructions page, not in the specific schedule instructions.

Worth calling special attention to is the change in reporting fair value rates on Schedule D. Companies may now report fair value rates other than those “published” by the SVO on the VOS database. (Ok, so some of you were already doing this, but now it is legal!) There is a little catch; you have to indicate where the rate was obtained. A new electronic only column, Method Used to Obtain Fair Value, has been added to Schedule D – Parts 1 and 2. Predefined indicators for data entry use are listed in the instructions. However, take note that an “a” or “b” answer is not sufficient by itself. The use of “a” requires the listing of the name of the pricing service; a response of “b” requires the listing of the name of the stock exchange. A list of stock exchanged abbreviations for use is provided on the Investment Schedules General Instructions page. Review the SVO’s Purposes and Procedures manual for a full discussion of the different options available for obtaining fair value rates, as well as any corresponding documentation requirements.

2. Review the accounting changes that were adopted this year. For example, at the September meeting, SSAP No. 99 was adopted. Although the official implementation date is 1/1/2009, early adoption by companies is encouraged. SSAP No. 99 provides guidance on how to handle existing amortization of premium and/or accrual of discount on securities that have been written down to a new cost basis because of an OTTI. Other accounting changes you may need to check out include changes to the type of audited financials used for valuation under SSAP No. 48, revisions to inter-company pooling arrangements in SSAP No. 63, clarification in SSAP No. 65 that loss adjustment expenses are not to be discounted unless expressly permitted by a company’s domiciliary state. This is not an all-inclusive list, so review everything carefully. SSAP No. 98 will most likely be adopted at the December meeting and it too will encourage early adoption. There are a few other items on the December agenda that could also affect this year’s reporting.

And the number one thing your should do to prepare for this year-end is:

1. Obtain your favorite comfort foods in large supply and store them in your work area. For me, this was always some sort of chocolate and Diet Coke. It doesn’t hurt to have other stress busters on hand, but do try to remember your fellow co-workers. For example, when I work under pressure and am trying to meet a deadline, I love to listen to Meatloaf. (The vocalist, not meatloaf simmering in the oven!) But I have found that others don’t have the appreciation for his music that I do. And remember, as tempting as it may be – no alcohol.

For you that are veterans of the year-end filing process, I am sure you each have your own methods of coping. For those of you who are rookies—well, stick around long enough and you too will develop your own methods of self-soothing.

Good luck and may the force be with you!