Money Market Mutual Funds (All Companies)
Because of regulations recently adopted by the SEC, the money market mutual funds (MMMF's) on the Class 1 List can no longer report stable net asset value. Given this change, these funds are no longer eligible for bond treatment under SSAP No. 26, effective September 30, 2016. Going forward these funds will be valued in accordance with SSAP No. 30 governing common stocks and reported on Schedule DA.
As a result, the Class 1 MMMF category on Schedule DA - Part 1 was eliminated and replaced with a new category, All Other Money Market Mutual Funds. This category includes all MMMF's registered under the Investment Company Act of 1940 that are not on the U.S. Direct Obligations/Full Faith and Credit Exempt List.
MMMF Category Presentation and Valuation
Prior to September 30, 2016
Exempt Schedule DA - Part 1 at cost
Class 1 Schedule DA - Part 1 at cost
Other Schedule D - Part 2 - Section 2 at fair value
After September 30, 2016
Exempt Schedule DA - Part 1 at cost
Other Schedule DA - Part 1 at fair value
There is a second change being considered to reclassify MMMF's from short-term investments to Schedule E - Part 2, Cash Equivalents. The Statutory Accounting Principles Working Group (SAPWG) has moved this item to the substantive active listing and exposed revisions to SSAP No. 2 with a proposed prospective application as of January 1, 2018. The SAPWG has expressed some concern about how this reclassification could impact the RBC charges on Exempt MMMF's (currently 0% charge that would move to .3% charge if no changes are adopted other than reclassification to Schedule E). The SAPWG will also be discussing the effective date at its Fall National Meeting to determine whether an effective date earlier than January 1, 2018, (i.e., December 31, 2017) is feasible since it will require adoption of changes by both the Blanks Working Group and the Capital Adequacy Task Force.
Data Security Model Law (Cybersecurity) (All Companies)
In August 2016, the NAIC's Cybersecurity Task Force exposed for comment the second draft of the Insurance Data Security Model Act (the Act). In general, the Act establishes uniform standards for the data security and investigation and notification of a data breach of any person or entity subject to the insurance laws of the state.
The second draft continues to incorporate the principles identified in the Cybersecurity Bill of Rights adopted in 2015, but it also makes significant changes as proposed by the insurance industry in response to its review of the first draft, which was exposed in March 2016. The Task Force has since also adopted a policyholder Bill of Rights that imposes obligations on insurers and agents that maintain personal information of applicants and their families.
The Model Act draft imposes significant responsibilities on Boards of Directors and C-level executives for planning, implementation, and updating cybersecurity plans, but the new draft strives to make these responsibilities more commensurate with the size of the organization, its complexity, and the nature of the personal information the organization holds and is responsible for. The draft continues to require that insurers engage only third-party service providers who can maintain appropriate safeguards over personal information but eases the specific contractual obligations. It also continues to require notice to insureds and remedial obligations as established by the Bill of Rights.
A second round of comments was received in September, and the draft and comments from the industry will continue to be discussed by the Task Force in an effort to recommend adoption of a final standard by the end of 2016. The final standard then must be adopted by state legislatures.
Short-Duration Contract Disclosures (P&C Companies)
In prior SB Insurance Insights, we have discussed new claims development disclosures for GAAP financial statements that are included in the Accounting Standards Update 2015-09, which is effective in 2017 for non-public entities. The NAIC's summary of the issue and actions to date can be found in Form A, Ref. No. 2015-37. The NAIC's Statutory Accounting Principles Working Group (SAPWG) is looking into the issue by issuing a request for comments from regulators and industry representative about whether revisions to Statutory Accounting Principles (SAP) disclosures should be considered in response to the ASU 2015-09 requirements.
While the disclosure requirements in SSAP No. 55, Unpaid Claims and Loss Adjustment Expenses and SSAP 65, Property and Casualty Contracts, are similar to the disclosure requirements in the new GAAP update, there are some wording differences. Several industry groups proposed modest changes to SSAP 55 and 65 disclosure requirements to align GAAP and SAP.
Principles-Based Reserving (PBR) (Life Companies)
The NAIC's Executive Committee and Plenary unanimously adopted the PBR Implementation Task Force recommendation of a January 1, 2017, effective date for the implementation of PBR. The effective date was recommended after 45 states representing 79.5% of direct life premium adopted the revised Standard Valuation Law (which includes the PBR Valuation Manual) and the revised Standard Non-forfeiture Law for Life Insurance. In early July, New York also adopted PBR with a January 1, 2018, effective date. The following link details the status by state:
The provisions of the Valuation Manual include a three-year transition period during which the application of PBR is optional. Companies that qualify can request a company-wide exemption (formally known as the small company exemption) as defined in the Valuation Manual.
Other initiatives related to PBR include:
The Executive Committee and Plenary adopted amendments to the Valuation Manual. The amended Valuation Manual as of August 29, 2016, can be found on the NAIC's website at:
The Statutory Accounting Principles Working Group (SAPWG) adopted substantive revisions to Statement of Statutory Accounting Principles (SSAP) No. 51, Life Contracts, to address the recording of a change in valuation basis under PBR and clarify that the initial application of PBR is not expected to result in a day one impact to surplus due to the prospective application. References to the Valuation Manual were also added to SSAP No. 51 to assist in the implementation of PBR.
SAPWG exposed the Implementation of Principle-Based Reserving issue paper.
The PBR Review Procedures Subgroup is working to develop PBR related guidance for the Financial Analysis Handbook and the Financial Condition Examiner's Handbook, including adding a PBR chapter to the Examiner's Handbook.
Defined Benefit Pension Plan Assumptions (All Companies with DB Plans)
In October 2016, the Society of Actuaries (SOA) updated the Mortality Improvement Scale (MP-2016) that supplements the most recent Mortality Table (RP-2014). The updated mortality improvement scale is based on actual Social Security Administration (SSA) mortality data from 2012 and 2013 and estimated mortality data for 2014. It also includes changes to the assumptions used to project future mortality improvement in an effort to increase year-over-year stability.
MP-2016 reflects a decrease in the rate of improvement in life expediencies in the United States compared with the data in the 2015 mortality improvement scale (MP-2015). The SOA indicated that the effect of applying the new mortality improvement scale could reduce the obligation by 1.5% to 2% compared with an obligation determined using MP-2015, depending on the individual characteristics of the plan.
Entities should consider the SOA's new data for defined benefit pension and other post-retirement benefit plans when making their mortality assumptions for year-end 2016 financial reporting. The SAPWG also adopted revisions to allow an alternative (i.e., spot rate) method for measuring cost and interest cost components of net periodic benefit costs.
What's New at Strohm Ballweg?
We recently hired two new staff accountants, Victoria Thayer and William Ballweg (no relation to Doug in case you were wondering!). We also promoted Andrew Hicks to Supervisor and welcomed Carrie Breunig on her promotion to our Senior Management staff.
Each year our employees select a "charity of the year" and work throughout the year to raise funds for the charity selected. Recently, we wrapped up our work for our 2016 charity, The River Food Pantry. We did several in-office activities to raise funds, as well as some landscaping chores for our landlord, which raised a generous amount, and then we had two shifts of employees work at a concession stand at a couple of Badger football games to raise even more. Our final total donation for the year was $5,279.