Late Changes to 2015 Annual Statement Notes
Following are some late changes to the 2015 Annual Statement Notes that will be included in this year’s filing:
ACA Risk Corridor Receivable
On November 5, 2015, the NAIC Emerging Accounting Issues (E) Working Group met to discuss the INT 15-01, ACA Risk Corridors Collectability, Exposure Draft. The final decisions made by the Working Group were as follows:
In summary, it is expected that entities subject to ACA with Risk Corridor Receivables will record the full 2014 amount expected to be recovered from CMS as an asset (absent any other reasons to write off some of this receivable if impaired), but only recognize 12.6% of this receivable as an admitted asset and non-admitting the remainder up until the time that more information is received from CMS or other federal agencies that additional amounts will be recovered. Any 2015 risk corridor receivables recorded should also be reported as non-admitted assets.
Catastrophe Risk Charge for RBC
There were a couple of proposed changes to the RBC Catastrophe calculations discussed and adopted at the recent NAIC 2015 Fall Meeting. The Catastrophe Risk (E) Subgroup adopted a change for year end 2016 to combine the existing R6 (earthquake) and R7 (hurricane) risk components into one "Rcat” or "Catastrophe Risk” component. This change will simplify the covariance adjustment formula and provide for an easier way to add future catastrophe perils (such as tornado, wildfire, and terrorism) when considered by the Subgroup.
For the 2015 Annual Statement, the Subgroup also adopted adding an interrogatory whereby a company can qualify for an exemption from completing the Catastrophe Risk Charge portion of the RBC filing if they are minimally exposed to earthquake and hurricane exposures in catastrophe-prone areas.
So, it would be prudent to keep an eye on the future discussions of this Subgroup as an insurer may currently be exempt based on current included exposures but might have some exposure if tornado, wildfire, or terrorism catastrophe risks are added in the future.
Cybersecurity and Identity Theft Insurance Coverage Supplement
The NAIC has adopted a new supplemental filing that will be required for 2015 to be completed by April 1 for entities that provide cybersecurity and identity theft insurance coverages. The supplement is a two-page form that requires the company to report direct premium, loss and loss adjusting expense, and policy count information.
Another Pension Mortality Table Change?
Yes, there is another new mortality improvement scale for use with defined benefit pension plans. After the release of the Mortality Improvement Scale MP-2014, the Social Security Administration released two additional years of mortality data causing the Society of Actuaries (SOA) to release the Mortality Improvement Scale MP-2015 (MP-2015).
What does this mean? Essentially, the data used to create the MP-2015 reflects that while people are indeed living longer, the rate at which longevity is increasing is less than what was previously projected. So, depending on plan characteristics, there is a possibility that the MP-2015 could reduce a plan’s pension obligation.
So, what mortality tables and mortality improvement scales should you be using to determine your plan’s obligation? Statutory accounting principles do not prescribe the use of a specific mortality table or mortality improvement scale; however, given the widespread use and acceptance of the SOA mortality tables, there is an expectation that these tables will be used as the basis for developing mortality assumptions (regardless of the tables used for funding purposes). If other tables or plan-specific data are used to develop the mortality assumption, credible information or rationale must be available and should be well documented to support the alternate approach, including evidence supporting why the alternate approach best reflects the mortality experience and demographics of the plan. This information should also include consideration of changing trends in future life expectancies.
Overall, you should be in close communication with your pension actuary to discuss which table is most appropriate in your specific circumstances.
New Electronic Columns on Schedule D - Part 1, Effective Year End 2015
Schedule D Part 1 of the Annual Statement has been updated to include four additional electronic columns for year-end 2015. The details of this change can be found at: http://naic.org/documents/committees_e_app_blanks_2015-14BWG.pdf, including sources for the information that may be needed to complete this new information. The new columns include:
1. Column 31 Name of the Issuer – Refer to the link above for acceptable sources for this information.
2. Column 32 Name of the Issue – Refer to the link above for acceptable sources for this information (they encourage the use of the information from this column to be used in column 2, Description as well).
3. Column 33, ISIN Identification – Record the ISIN number only if no valid CUSIP, CINS, or PPN exists to report in Column 1.
4. Column 34, Capital Structure Code – Use one of five codes included in the link above.
Proposal to Require Quarterly Reporting of Detailed Schedule D Holdings
The Statutory Accounting Principles (E) Working Group has been considering a proposal to include the usual Schedule D, Part 1 and Part 2, listing of investment holdings data in the NAIC quarterly filings. Regulators requested the detailed investment information be included to facilitate review and assessment of financial condition over interim periods. In November 2015, the Statutory Accounting Principles (E) Working Group exposed a proposal for reporting entities to prepare a quarterly electronic-only supplemental filing, which would include the CUSIP, par value, book adjusted carrying value, and fair value for Schedule D investments. This proposal is still being evaluated and has not been adopted for 2016 quarterly filings as of this writing. For more information on this reporting proposal, visit the SAGWG’s website at http://www.naic.org/committees_e_app_sapwg.htm, reference number 2015-45.