In October, the NAIC adopted the Insurance Data Security Model Law, which establishes the standards for data security, for investigating a cybersecurity event, and for notifying state insurance commissioners of a cybersecurity event (i.e. data breach). This was developed/modeled from the New York cybersecurity regulation that went into effect March 1, 2017.
The full law can be seen at http://www.naic.org/store/free/MDL-668.pdf. Some key highlights of the law include the following:
There have been a few changes finalized for the 2017 Annual Statement related to investments, including the following:
At the August 2017 NAIC Meeting, the Statutory Accounting Principles Working Group (SAPWG) continued its discussion of the U.S. Department of Health and Human Services (HHS) adoption of a new regulation that changed how ACA risk adjustment would function, starting in 2018. Beginning in 2018, the ACA risk adjustment program will include a reinsurance-like element called high-cost risk pooling (HCRP).
The new HCRP element of ACA risk adjustment will operate as follows:
HHS will establish two new HCRP parameters: a threshold and a coinsurance rate. For 2018, the threshold has been set at $1 million, and the coinsurance rate has been set at 60 percent.
Conceptually, HCRP can be thought of as a form of reinsurance: The amounts subtracted from an insurer’s risk adjustment transfer amount in step 3 are like reinsurance premiums that the insurer pays in order to receive protection on claims above the threshold, and the amounts credited to an insurer’s risk adjustment transfer amount in step 2 are like reinsurance reimbursement for the claims ceded via this reinsurance.
There are similarities between HCRP (starting in 2018) and the ACA’s transitional reinsurance program (which ran from 2014 to 2016). However, there are several differences. A key question is whether the introduction of the HCRP element of ACA risk adjustment will have any impact on how companies account for ACA risk adjustment. The SAPWG at its meeting on November 6th, agreed to adopt accounting treatment that would not decompose the risk adjustment payable/receivable and record any recoveries and account for any recoveries as an adjustment to premiums. This will be voted on by Executive and Plenary at the December NAIC meeting and would be effective beginning January 1, 2018, if adopted.
In case you missed it, there was a wording change to the Supplemental Exhibits and Schedules Interrogatories page of the Annual Statement that now requires the filing of the company’s Internal Control Letter received from their auditors electronically with the NAIC. This wording changed for the 2016 Annual Statement but was not communicated broadly and some states may not have updated their filing checklists to provide notice of this change. This is an August 1 filing.
Here is a link to the NAIC’s listing of all changes adopted by the Blanks Committee for the 2017 Annual Statement and 2018 Quarterly Statements: http://www.naic.org/cmte_e_app_blanks_related_adopted_mods.htm
The Society of Actuaries (SOA) has recently issued MP-2017, an updated mortality improvement scale for calculating benefit obligations and contributions for defined benefit plans. The SOA preliminarily estimates that using the MP-2017 rather than the MP-2016 could reduce a plan’s liabilities by 0.7% to 1.0%, depending on the plan’s characteristics.
In 2012, the NAIC adopted changes to the P&C RBC to incorporate a catastrophe risk charge into the RBC formula. This catastrophe risk charge was reported on an informational basis for 2013-2016 to allow the subgroup time to examine the impact of the calculation changes on insurers. Finding no significant concerns, the NAIC adopted changes to fully implement the catastrophe risk charge that will be included and reflected in 2017 for P&C insurers.
In August, the SAPWG exposed suggested changes to SSAP No. 22, Leases, to incorporate revised U.S. GAAP guidance, continuing the modification to retain operating lease treatment for all leases for statutory accounting. Overall, the intent is not to change the accounting for leases and sale/leaseback transactions for statutory accounting. NAIC Staff will evaluate Interested Party comments and revised GAAP guidance to see if further revisions should be considered.
There was some concern that existing statutory guidance may be allowing the recognition of too much goodwill in statutory financial statements. After considering various alternatives for recognizing different amounts of goodwill, the SAPWG at its November meeting opted to leave the existing guidance as is, but expose for comment proposed additional disclosure information in Footnote 10 – Information Concerning Parent, Subsidiaries, Affiliates and Other Related Parties to capture additional goodwill information.
Below is an listing of the 18 states that have passed laws/regulations related to CGAD, updated through July 2017:
In addition, there are 2 states with active legislation in progress:
A number of issues have been on the NAIC’s radar related to surplus notes and a couple of clarifications are being deliberated for finalization by the SAPWG.
Valuation of Surplus Notes Held as Investments – the working group clarified the valuation methods for holders of surplus notes indicating that surplus notes held as investments will follow the same valuation principles as bond investments, in that surplus notes with a designation equivalent to NAIC 1 or NAIC 2 shall be reported at amortized cost. All other surplus notes are required to be reported at the lesser of amortized cost or fair value.
Double Counting of Surplus Notes – for surplus notes issued or held between SCAs, guidance in SSAP 97, Investments in Subsidiary, Controlled and Affiliated Entities, requires adjustment to prevent potential double counting of surplus notes in a parent entity’s surplus. For example, an insurance entity is not permitted to report the issuance of a surplus note as an increase in surplus and have an asset representing an investment in the SCA that includes the issued surplus note (held by an SCA). The investment in SCA shall be adjusted to eliminate the surplus note issued by the reporting entity.
Each year, we review Insurance Department websites in an effort to summarize trends in Department examination comments that have been issued to insurance companies. This past summer, we were able to review comments issued to companies for examinations through December 31, 2015, year ends, and noted frequent recommendations on the following topics:
Congress’s Proposed Federal Tax Reform for 2017 (All Companies)
Proposed federal tax law changes by Congress are in their infancy, and who knows what will ultimately be agreed upon by the House and Senate for signature by the President. The initial foray by Congress includes the following measures that would have a potentially significant impact on insurance companies:
More to come as tax reform changes are enhanced, deleted, modified, and signed into law.
What’s New at Strohm Ballweg?
We’ve got some new faces at Strohm Ballweg! We’re happy to welcome to our team: Kelsi Hau, Senior Accountant; Mario Prcic, Staff Accountant; Tiffany Celmer, Administrative Assistant; and Ben Hagen, Underwriter for Municipal Property Insurance Company. Strohm Ballweg will also have interns, Hannah Langworthy (UW-Whitewater) and Payton Wright (UW-La Crosse), joining us in January.
We’re also excited to announce some recent promotions: Monica Westrich to Manager, Jacob Salzmann to Supervisor, and Kyle Kagerbauer to Senior Accountant.
In 2017, Strohm Ballweg selected to support the local Ronald McDonald House of Madison as part of our community outreach efforts. During the course of the year, the staff participated in the following activities to raise donation funds:
Strohm Ballweg’s grand total donation for 2017 was $5,496 to a great organization which provides a "home-away-from-home” for families with children who need medical care.