Insurance Statutory Reporting - KPMG Institutes · · 2018-03-26Insurance Statutory Reporting 1 ....

Insurance Statutory

Reporting

January 2017

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Insurance Statutory Reporting 1

Insurance companies will need to comply with new and revised statutory accounting standards for 2016 and 2017 financial reporting. In this edition of Insurance Statutory Reporting, we summarize the new guidance and show you where you can find additional information in KPMG publications.

NAIC meeting materials also provide additional information.

Noteworthy Changes

Effective for 2016 reporting

• SSAP No. 1 adopted the new U.S. GAAP guidance for management’s responsibility to perform going concern analyses and disclosures.

• SSAP No. 55 clarified reporting for fees paid or incurred by insurers to collect salvage and subrogation.

• SSAP No. 97 clarified the scope of disclosures for balance sheet values of Subsidiary, Controlled and Affiliated Entities (SCAs) and information that the insurers received from the NAIC in response to the SCA filing.

• SSAP Nos. 26 and 43R clarified guidance for prepayment penalties by specifying the amount of investment income and realized gains and losses that must be reported on disposal of investments.

New material in this edition is set in red type

Effective for 2017 reporting

• SSAP No. 2 reclassified money market mutual funds to cash equivalents and required them to be reported at fair value.

• SSAP No. 103R added enhanced disclosures for repurchase and reverse-repurchase agreements.

Effective Date

Unless otherwise indicated, the guidance became effective upon adoption.

Upcoming Meeting

NAIC spring meeting – April 8–11 in Denver

Contents Overview of New Statutory Guidance ----------------------------------------------------- 2

2016 Reporting -------------------------------------------------------------------------------- 2

2017 Reporting ------------------------------------------------------------------------------- 4 2016 Reporting ------------------------------------------------------------------------------------- 5

SSAPs-------------------------------------------------------------------------------------------- 5

Other --------------------------------------------------------------------------------------------- 8 2017 Reporting ------------------------------------------------------------------------------------- 9

SSAPs-------------------------------------------------------------------------------------------- 9

Other --------------------------------------------------------------------------------------------- 10

http://www.naic.org/



01 Overview of New Statutory Guidance

2016 Reporting

Statements Of Standard Accounting Practice Standards

SSAP Title Recognition or Measurement Disclosure

KPMG’s Issues & Trends

NAIC Reference Number

1 Accounting Policies, Risks & Uncertainties, and Other Disclosures

15-3 2014-29

48 Joint Ventures, Partnerships and Limited Liability Companies

68 Business Combinations and Goodwill

97 Investments in Subsidiary, Controlled and Affiliated Entities

1 Accounting Policies, Risks & Uncertainties, and Other Disclosures

16-3 2015-19

16-5 2015-52

16-5 2015-41

2016-09

2016-11

2

26

43R

Cash, Drafts, and Short-Term Investments

Bonds

Loan-Backed and Structured Securities

17-1 2016-24

2

26

30

32

Cash, Drafts, and Short-Term Investments

Bonds

Unaffiliated Common Stock

Preferred Stock

2016-05

3 Accounting Changes and Corrections of Errors 17-1 2015-46

16R Electronic Data Processing Equipment and Software

2015-15

http://www.kpmg-institutes.com/content/dam/kpmg/financialreportingnetwork/pdf/2015/iti-15-3-naic-spring.pdf

http://www.kpmg-institutes.com/content/dam/kpmg/financialreportingnetwork/pdf/2016/issues-trends-insurance-16-3.pdf








23 Foreign Currency Transactions and Translations

2016-25

2016-26

55 Unpaid Claims, Losses and Loss Adjustment Expenses

16-5 2015-21

56 Separate Accounts 17-1 2016-27

61R Life, Deposit-Type and Accident and Health Reinsurance

17-1 2016-28

84 Health Care and Government Insured Plan Receivables

17-1 2016-23

86 Derivatives 2015-43

2016-14

86 2016-29

92 Postretirement Benefits Other than Pensions 16-5 2016-08

102 Pensions

97 Investments in Subsidiary, Controlled and Affiliated Entities

16-5 2016-04

2015-25

16-3 2015-49

97 2016-21

97 NA1 NA1 2016-22

97 NA1 NA1 2016-37

100 Fair Value 16-3 2016-06

107 Risk-Sharing Provisions of the Affordable Care Act

16-3 2015-54

Other

INT 16-01 ACA Section 9010 Assessment 2017 Moratorium

16-3 2016-01

Appendix A-695

Synthetic Guaranteed Investment Contracts 2015-44

1 Change is related to filing instructions or change in a definition of a term within the SSAP.













2017 Reporting


SSAP Title

Recognition or

Measurement Disclosure KPMG’s Issues

& Trends

NAIC Reference Number

2R Cash, Cash Equivalents, Drafts, and Short-Term Investments

17-1 2016-18

2016-35

26

43R

Bonds

Loan-Backed and Structured Securities

(Annual Statement)

16-5 2015-23

35R Guaranty Fund and Other Assessments 17-1 2016-38

41R Surplus Notes 16-3 2014-25

51R

Life Contracts 2015-47

2016-15

54R Individual and Group Accident and Health Contracts

2016-34

86 Derivatives NA1 NA1 17-1 2015-51

103R Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

16-5

17-1

2015-02

2016-16

Other

Appendix A-820

Minimum Life and Annuity Reserve Standards 16-5 2016-10

Appendix

A-010

Minimum Reserve Standards for Individual and Group Health Insurance Contracts

2016-17











02 2016 Reporting

SSAPs

SSAP NAIC Reference Number

Adoption Revisions

1, 48, 68, and 97

2014-29 Spring 2015 • Adopted the new U.S. GAAP guidance for going concern analysis and disclosures. These revisions include the requirement for insurers to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when substantial doubt exists.

• Adopted revisions to SSAP Nos. 48, 68, and 97 to require investments to be nonadmitted if the audited financial statements include management’s assessment that there is substantial doubt about the entity’s ability to continue as a going concern.

Effective December 31, 2016 and interim and annual periods thereafter.

1 2015-19 Spring 2016 Revised guidance to require interim disclosure of restricted assets if the balances changed significantly from the previous period.

1 2015-52

2015-41

2015-09

2016-11

Summer 2016 Revised or added disclosures including:

• Disclosure of all permitted and prescribed practices that result in different statutory accounting reporting, including gross or net presentation or different financial statement reporting captions. These revisions include new examples to provide clarity.

• Disclosure of current and prior-period information about the number of 5-star (*) securities and the book-adjusted carrying value and fair value for those securities.

• Disclosure of the aggregate total collateral reported as assets on the balance sheet and the corresponding liability for the return of the collateral.

• Clarified the Annual Statement instructions to disclose known insurance-linked security information associated with the entity’s reinsurance arrangements.

2, 26 and 43R

2016-24 Fall 2016 Clarified that for all bonds categories receiving bond treatment in Schedule D in the Annual Statement, the following should be disclosed:

• Book/adjusted carrying values,

• Fair values,

• Excess of book/carrying value over fair value, and

• Proceeds from sales of bonds.

2, 26, 30, and 32

2016-05 Summer 2016 Removed the Class 1 Money Market Mutual Fund List from the Practices and Procedures Manual, and clarified that money market mutual funds should be accounted for and reported as short-term investments.




Adoption Revisions

3 2015-46 Fall 2016 Clarified that:

• Corrections of accounting errors in previously issued financial statements should be reported as adjustments to unassigned surplus in the period identified.

• Insurers should file amended financial statements when they become aware of a material accounting error, unless otherwise directed by the domiciliary regulator.

16 2015-15 Fall 2016 Clarified that entities licensing internal-use computer software are required to follow the accounting guidance in SSAP No. 22, Leases.

23 2016-25

2016-26

Fall 2016 • Clarified that if a reporting entity does not meet the requirements for Canadian insurance operations in SSAP No. 23 for a one line adjustment presentation in net assets of the foreign operations, requirements for all other foreign insurance operations should be followed.

• Added guidance for when a parent reporting entity realizes foreign currency translation changes in foreign entity investment.

55 2015-21 Summer 2016 • Clarified that fees paid or incurred by insurers to collect salvage and subrogation should be accounted for net of the associated expenses.

• Clarified that all such recoveries are subject to the impairment guidance in SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets.

56 2016-27 Fall 2016 Revised to remove the disclosure about total maximum guarantees.

61R 2016-28 Fall 2016 Revised disclosure requirements for variable annuity captives including:

• A disclosure of the reserve methodology used in the affiliated captive insurer’s financial statements;

• A brief description of the hedge target;

• How the reserve methodology differs from the requirements of AG 43; and

• Permitted practices used by captive reinsurers following the guidance in SSAP No. 1.

84 2016-23 Fall 2016 Clarified that receivables must originate from the government to remain an admitted asset if they are over 90 days past due.

86 2015-43

2016-14

Summer 2016 • Incorporated the U.S. GAAP definition of a weather derivative, and adopted with modification EITF Issue No. 99-02, Accounting for Weather Derivatives, to require weather derivatives to be reported and valued consistent with other derivatives under the SSAP No. 86 guidance.

• Incorporated information about swaptions to use as an example of a derivative instrument.

86 2016-29 Fall 2016 Adopted with modification ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, clarifying that a change in the counterparty to a derivative instrument does not, by itself, result in a termination of the derivative instrument.

https://asc.fasb.org/




Adoption Revisions

92 and 102

2016-08 Summer 2016 • Revised guidance to allow the spot-rate approach to measure the service cost and interest cost components of net-period benefit cost.

• Incorporated two paragraphs from ASC Topic 715, Compensation – Retirement Benefits that were included in FASB Statement No. 87 within the basis for conclusions, about using weighted-average discount rates.

97 2016-04

2015-25

Summer 2016 • Clarified that disclosures of the SCAs balance sheet value, as well as information received from the NAIC in response to the SCA filing only apply to SCA investments within the scope of SSAP No. 97 and specifically excluded investments accounted for under SSAP No. 48.

• Added a new appendix to provide filing guidance for SCAs.

97 2015-49 Spring 2016 Clarified that ownership of an exchange-traded fund or a mutual fund does not represent ownership in an underlying entity within the scope of SSAP No. 97, unless ownership results in control of an underlying company.

97 2016-21

2016-22

2016-37

Fall 2016 Revised guidance to identify the New York Stock Exchange, the NASDAQ, and the Japan Exchange Group as the exchanges allowed under the market valuation method.

Revised Exhibit A of SSAP No. 97 to:

• Require that all supporting documentation (e.g., audited financial statements) provided for foreign SCA filings be stated in English and

• Clarify that subsidiary information is submitted to the NAIC SCA analysts rather than the Securities Valuation Office (SVO).

Added filing guidance for SCAs stating that:

• SCAs that are nonadmitted or have zero value for a full reporting period are not required to submit a specific filing and

• Companies may request an exemption from filing for Immaterial SCAs.

100 2016-06 Summer 2016 Excluded deposit liabilities with no defined or contractual maturities from the fair value disclosure for financial instruments.

107 2015-54 Spring 2016 Added disclosures for the federal risk corridor program that must be disclosed by program benefit year:

• Estimated amount to be filed or final amounts filed with the federal agency;

• Amounts impaired or amounts not accrued for other reasons (notwithstanding collectibility concerns);

• Amounts received from the federal agency;

• Asset balance gross of nonadmission;

• Nonadmitted amounts; and

• Net admitted assets.

Effective March 31, 2016

https://asc.fasb.org/viewpage



Other

SSAP NAIC reference number Adoption Revisions

INT 16-01 2016-01 Spring 2016 Added guidance about reporting the Section 9010 ACA fee from 2016 through 2018, specifically addressing the moratorium on the Section 9010 fee for the 2017 calendar year.

Appendix

A-695

2015-44 Fall 2015 Incorporated revisions to conform with changes adopted for Model A-695 related to:

• Changing the scope of the section by precluding the application of the guidance to contingent deferred annuities;

• Changing the discount rate used in determining the reserve;

• Eliminating the deduction for the market value of assets provided that the asset default risk is borne by the policyholders;

• Changing the definition for spot rates, synthetic guaranteed investment contracts (GICs), and pooled funds; and

• Modifying the valuation requirements for synthetic GICs issued to pooled funds.

Effective January 1, 2016



03 2017 Reporting

SSAPs


2R 2016-18

2016-35

Fall 2016 Revised reporting and measurement requirements for money market funds:

• Reclassified money market mutual funds from short-term investments to cash equivalents.

• Required money market mutual funds to be reported at fair value, with the net asset value allowed as a practical expedient. Unrealized gains and losses on money market mutual funds follow the guidance in SSAP No. 7 (for AVR filers) or recorded directly in surplus for non-AVR filers.

Effective December 31, 2017

26 and 43R

2015–23 Summer 2016 Revised the reporting of prepayment penalties:

• Clarified the amount of investment income and/or realized capital gains/losses to be reported on disposal of an investment; and

• Created a new disclosure in the Annual Statement, requiring an insurer to identify the amount of investment income generated as a result of prepayment penalties and/or acceleration fees.


35R 2016-38 Fall 2016 Allowed expected renewals of short-term contracts for long-term care assessments to be considered in determining the premium tax credits and policy surcharge assets recognized when accruing guaranty and fund liability assessments. This consideration is permitted when:

• Retrospective-premium-based assessments are imposed on short-term health contracts for insolvencies of long-term care contract insurers; and

• It is probable that accrued liability assessments will result in a future recoverable for premium tax credits or policy surcharges for business currently in force.


41R 2014–25 Spring 2016 Required surplus notes with NAIC designation:

• 1 or 2 to be measured at amortized cost; and

• 3 through 6 to be measured at fair value.

This was a substantive revision and thus changed the title of SSAP No. 41 to SSAP No. 41R.


51R

2016-15 Summer 2016 • Incorporated references to the Valuation Manual to facilitate the implementation of principles-based reserving (PBR) and included guidance about how to evaluate the change in valuation basis to determine whether it meets the definition of a change in accounting as defined in SSAP No. 3.

• This change would:




Include changes in methodology or voluntary choices in application of the methodology; and

Exclude updates to reserving assumptions based on experience as required under the existing methodology.

• Clarified that insurers should continue the current reporting of the effect of changes in valuation basis in surplus. Because PBR will be adopted on a prospective basis, its initial application is not expected to result in a day one impact to surplus.

• Incorporated references to the Valuation Manual and to facilitate the implementation of PBR.


54R 2016-34 Fall 2016 • Incorporated references to the Valuation Manual for health reserving requirements, and

• Update the change in valuation basis guidance for health reserves to reflect the use of own company experience

86 2015-51 Fall 2016 Defined notional amount for instruments other than futures contracts, and clarified that the definition serves as a principle for determining the notional amount for all derivative instruments.


103R 2015-02 Summer 2016 Added accounting guidance for short sales, as well as guidance for secured borrowing transactions, when the insurer is the transferee. This was a substantive revision that changed the title of SSAP No. 103 to SSAP No. 103R.


103R 2016-06 Fall 2016 Added enhanced disclosures for repurchase and reverse-repurchase agreements. Insurers will need to disclose general information about repurchase and reverse repurchase agreements as well as detailed information for agreements that are accounted for as secured borrowing and sale transactions.

Effective December 31, 2017

Other Appendix

A-820

2016-10 Summer 2016 Incorporated relevant aspects of the 2009 Standard Valuation Law amendments.


Appendix A-10

2016-17 Fall 2016 Revised guidance to incorporate the 2013 individual disability income valuation table.

Effective January 1, 2020 with early adoption allowed as of January 1, 2017

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The descriptive and summary statements in this newsletter are based on participating in conference meetings and conference calls and are not necessarily applicable to the specific circumstances of individual companies. They are not intended to be a substitute for the final texts of the relevant documents or the official minutes of the NAIC proceedings. Companies should consult the texts of any requirements they apply, the official minutes of the NAIC meetings, and seek the advice of their accounting and legal advisors. Issues & Trends In Insurance® is a registered trademark of KPMG LLP.


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