Insurance Insights - October 2018 Edition

on 10/15/2018 1:01 PM

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P&C Reinsurance Schedule F Revision
While there are not a lot of significant changes to the 2018 annual regulatory filings and the 2019 quarterly filings, the Schedule F change may be the biggest.  This isn’t so much new news as it is a reminder for year-end statutory reporting.  Beginning with the 2018 year-end Annual Statement filings, Schedule F, which reports reinsurance activity, will be revised in the P&C blank.  This change will combine the current Schedule F, Parts 3-8, into a single new Schedule F-Part 3-Ceded Reinsurance.  It will also eliminate the under $100,000 aggregation in Schedule F-Part 1 to be consistent with Part 3 reporting, and modify the crosscheck references for lines 13 and 16 of the liabilities page to reflect the changes to Schedule F. 
 
In essence, the information previously required on Schedule F-Parts 3-8 will be incorporated into one schedule (Part 3) for ceded reinsurance.  The aim of these changes is to eliminate repetitive information and have Schedule F information flow seamlessly into the RBC formula related to reinsurance credit risk.  Schedule F, Part 9 – restatement of the balance sheet for ceded reinsurance - still exists and is simply renumbered to Schedule F, Part 6.  There will be a new Schedule F, Part 4 – Issuing or Confirming Banks for Letters of Credit (previously footnoted information in the statement), and Part 5 – Five Largest Provisional Commissions and Five Largest Reinsurance Recoverable (again, previously footnoted information).
 
 
Impact of Tax Act on Insurers
The Tax Cuts and Job Act (the Act) was signed into law on December 22, 2017.  While the change in the effective tax rate to a straight 21% impacted deferred tax calculations in 2017, most changes will impact federal income taxes in 2018.  As the end of 2018 draws near, here is a summary of the changes in the Act that will impact many of you in the insurance industry.
 
 
 
Life Risk-Based Capital (RBC)
At the Summer 2018 NAIC Meeting, the Capital Adequacy Task Force adopted the Life RBC Working Group’s proposal to revise the RBC formula and related instructions for 2018. These revisions conform the tax factors used in calculating the tax effect in the Life RBC formula to the new 21% tax rate under the Tax Cuts and Jobs Act (TCJA).  The American Academy of Actuaries (AAA) has created an interpretation of RBC results in light of these revisions (a six-page document), which was developed as a resource primarily for regulators and those conducting financial examinations of insurance companies to help them understand that changes to an insurer's RBC ratio could result from the TCJA, as opposed to any actions taken by the insurer.  The document can be found here.
 
 
Bye Bye Brown Blank!
The NAIC Blanks Working Group adopted their proposal to eliminate the brown fraternal blank and combine the reporting of life (blue blank) and fraternal companies into one life blank.  This will be effective for the first quarter of 2019.
 
 
Issue Paper and Proposal for SSAP No. 22R – Leases
Substantive revisions are being proposed by the NAIC Statutory Accounting Working Group (SAPWG) to modify SSAP No. 22 – Leases as a result of the FASB issuing ASU 2016-02 – Leases, which created ASC Topic 842 – Leases.  The SAPWG proposal that is currently issued for comment has revised accounting guidance on certain aspects of leases to be more in line with GAAP, including leveraged leases and sale-leaseback transactions, but continues to reject GAAP in that all leases will continue to be treated as operating leases and expensed for statutory accounting purposes.
 
 
Insurance Data Security Model Law – Wisconsin Update
The Data Security Model Act was adopted by the NAIC in 2017.  While this Model Act is not an accreditation requirement for state insurance departments yet, it very well may be as pressure continues to grow to strengthen security around policyholder information and the systems that process it.  Currently, only New York and South Carolina have passed legislation requiring compliance with the Act (New York has its own version on which the Model Act was based).  Last month, the Wisconsin Insurance Department held an open hearing to gain feedback from the industry on the Model Act to assist the Department with preparing a bill to hand off to state legislators.  While the Department’s hope is to have a bill ready for consideration in 2019, ultimate timing will depend on the legislature’s calendar.  Industry representatives provided suggestions for a number of “tweaks” to the Model Law and there was significant concern communicated about the requirements of insurers surrounding ensuring adequate data security related to third-party providers.  Further meetings on this topic with the industry are planned by the Department.
 
 
Results of our Strohm Ballweg Client Survey
Providing exceptional client service is one of the four pillars of the Strohm Ballweg Strategic Plan.  Every two years, we survey our clients to gain your insights directly about the quality and timeliness of our services.  We recently tallied up the results of the latest survey, which revealed results that again make us extremely proud!  Sixty of our clients responded to the survey with ratings and commentary about the services we provide them – from audit and tax services, consulting engagements, regulatory filings, outsourced services, and investment accounting.  The quality ratings use a rating scale of 1 (poor) to 5 (exceptional) on twelve different client service measures.  For all twelve rating responses, we received an overall rating of 4.80 out of 5.00.  No category had a rating of less than 4.42 and two ratings were 4.95 or better!  In addition, there were a considerable number of positive responses and compliments about how SB serves our clients and about our people.  And yes, there were suggestions for improvement, which we always welcome.  We appreciate the time you all took to complete a survey, offering your candid feedback, and continuing to hold us to a high standard of providing exceptional client service.  We sincerely appreciate serving our great clients and will remain vigilant to maintain and improve our service to you!  To view the survey, please click here.
 
 
SB Statutory Accounting Workshop
Strohm Ballweg held a Statutory Insurance Accounting Workshop, open for clients at no charge, for two half days on August 22nd and 23rd in Madison, WI.  The Workshop was intended for those newer to the insurance industry and/or statutory accounting.  Fifty-two clients attended the seminar, which consisted of a general half-day session for all participants on day one, followed by a complimentary social hour and dinner.  Participants enjoyed a breakfast at the Strohm Ballweg office on day two, and split up into breakout sessions by industry – P&C, Life, and Health – to cover the primary insurance accounting cycles – premiums, claims, investments, and expenses.  The attendance at the workshop was better than expected and many positive reviews were received.  We plan to continue evaluating clients’ need for, and interest in, this type of a program (or others of interest) in the future.
 
 
New Client Highlights 
We welcome our newest Strohm Ballweg clients first served during 2018:
  • AllyAlign Health – regulatory filings for a number of health insurers in multiple states providing medicare coverage for long-term care insurance
  • Hawaii Management Alliance Association – quarterly and annual regulatory filings – health insurer in Hawaii
  • Wisconsin Physicians Service (WPS) – one-day statutory accounting workshop
  • National Preventative Services and Florida Preventative Services – quarterly and annual regulatory filings for health insurers in Florida and Illinois
  • Catholic Financial Life – audit services for a fraternal life insurer
  • Chiron Insurance Company (subsidiary of Pharmacists Mutual) – audit services
  • Care1st Health Plan – regulatory filings for California health plan
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