Fall Midwest IASA Conference Council Bluffs, Iowa September 12-13, 2019

Agenda Annual Statement Reporting RBC

Annual Statement reporting

Shared Revisions General Interrogatories – Part 1 Clarification added to 28.0597, 28.0598 in annual and 17.5097, 17.5098 in quarterly (assets managed by unaffiliated individual/firms) Questions apply only to INVESTED assets

Shared Revisions General Interrogatories – Part 1 “Grandfathered” Schedule BA Investments 35. By assigning FE to a Schedule BA non-registered private fund, the reporting Entity is certifying the following elements of each self-designated FE fund.   a. The shares were purchased prior to January 1, 2019. b. The reporting entity is holding capital commensurate with the NAIC Designation for the security. c. The security had a public credit rating(s) with annual surveillance assigned by an NAIC CRP in its legal capacity as an NRSRO prior to Jan. 1, 2019. d. The fund only or predominately holds bonds in its portfolio. e. The current reported NAIC Designation was derived from the public credit rating(s) with annual surveillance assigned by an NAIC CRP in its legal capacity as an NRSRO. f. The public credit rating(s) with annual surveillance assigned by an NAIC CRP has not lapsed. Has the reporting entity assigned FE to Schedule bA non-regulated private funds that complied with the above criteria? Yes [ ] No [ ]

Shared Revisions Notes to Financials #5 - Investments 5F, 5G, 5H, 5I (repurchase and reverse repurchase agreements) Eliminates much of the detail listing of transactions, instead using a narrative approach Revisions to SSAP No. 103R 5L(4) Requires disclosure of collateral received and reflected as assets in financial statements Applies to LAH/Fraternal and Property/Casualty 5L(4) also separates between general account and separate accounts or protected cell per SSAP No. 1

Shared Revisions Note to Financials #5 - Investments 5O – Structured Notes Eliminated because of new Schedule BA reporting Revisions to SSAP No. 21; Issue Paper No. 160 Note to Financials #8 - Derivatives New disclosure from adoption of SSAP No. 108 – Derivative Hedging Variable Annuity Guarantees

Shared Revisions Note to Financials #9 - Taxes Instructions and illustration additions for Repatriation Transition Tax (RTT) and Alternative Minimum Tax (AMT) Credit INT 18-03: Additional Elements Under the Tax Cuts and Jobs Act Notes to Financials #10 – SCAs Loss tracking

Shared Revisions Notes to Financials #12 - Retirement New disclosures, but also some reduction of previous disclosures From revisions to SSAP No. 92 and No. 102 Notes to Financials #20 – Fair Value Fair Value Elimination of disclosure of transfers between Level 1 and Level 2 Elimination of discussion of company policy for recognizing Level transfers From revisions to SSAP No. 100R

Shared Revisions Notes to Financials #21 – Other Items Amount that could be realized on life insurance where reporting company is owner and beneficiary or has otherwise obtained rights to control policy From revisions to SSAP No. 21

Shared Revisions Summary Investment Schedule

Investment Schedules Schedule B – Parts 1 and 2 P/C and Health companies now required to categorize mortgage loans into same sub-classifications as LAH/Fraternal companies

Investment Schedules Schedule BA New reporting categories for all insurers Fixed or Variable Interest Rate Investments that have the Non-Registered Private Funds with Underlying Assets Having Characteristics of: Bonds: NAIC Designation Assigned by the Securities Valuation Office (SVO) Unaffiliated 0799999 Affiliated 0899999 NAIC Designation Not Assigned by the SVO Unaffiliated 0999999 Affiliated 1099999

Investment Schedules Schedule BA New reporting categories for all insurers Joint Ventures, Partnerships or Limited Liability Company Interests for Which that have the Underlying Assets Have the Characteristics of: Bonds: NAIC Designation Assigned by the Securities Valuation Office (SVO) Unaffiliated 1599999 Affiliated 1699999 NAIC Designation Not Assigned by the SVO Unaffiliated 1799999 Affiliated 1899999 This reporting is no longer just for LAH/Fraternal companies.

Investment Schedules Schedule BA Investments in structured settlement income streams (structured settlements) to be reported on Schedule BA Classify as “Any Other Class of Asset” Revisions to SSAP No. 21; Issue Paper No. 160 Reporting company acquires legal right to receive payments

Investment Schedules Administrative Symbols NR – not rated; has been replaced with ND – not designated YE – Year-end carry over Assigned to annual update securities SVO unable to update at year-end; SVO extends existing designation with YE administrative symbol IF – Initial filing Initial filing cannot be process by year-end; company self-assigns designation with IF administrative symbol

Investment Schedules Transactions not eligible for FE SCA investments Catastrophe-link bonds Shares of specified funds Regulatory transactions Credit tenant loans (CTL) Replication (synthetic asset) transactions (RSATS) Working Capital Finance Investments (WCFI) https://www.naic.org/documents/cmte_e_vos_adopted_190407_amend_not_eligible.pdf?99

Investment Schedules Bonds Flow chart determining the NAIC Designation for structured securities no longer in statement instructions Elimination of Modified Filing Exempt (MFE) Effective March 31, 2019 Securities previously qualifying as MFE are now considered FE securities SSAP No. 43R and IAO Manual revised

Investment Schedules Bonds (cont’d) Mortgage reference securities to be reported in “U.S. Special Revenue and Special Assessment….” category From revisions to SSAP Nos. 26R and 43R

Investment Schdules Bonds Revision of bond characteristics codes “4” restricted to SSAP No. 43R items “5” limited to variable interest payments “6” capture of mortgage reference securities reported under scope of SSAP No. 43R Specifies some other structured securities and weather derivatives not be reported as bonds, but as derivatives Deletes specific reference to inclusion of insurance-linked securities, IOs, mortgage-referenced securities not actually backed by a pool of assets

Investment Schedules Bonds Realized gain/(loss) Instructions for securities called where consideration received is less than par References SSAP No. 26R Difference between BACV and par value at time of disposal

Investment Schedules Bonds received as property dividend or capital contribution Must use SSAP No. 25 to determine if economic transaction Reported actual cost should be the initial recognized value Both revisions to SSAP No. 26R If qualifies as economic transaction, record at fair value as outlined in SSAP No. 25 SSAP No. 72 also revised

Investment Schedules Freddie Mac Single Security Initiative INT 19 – 02 Reporting entities permitted to exchange “45-day securities” for “55-day securities” without any material change to the securities Interprets SSAPs No. 26R and No. 43R Exception to exchange and conversion guidance; continuation of the amortized cost basis of the security surrendered to the new security received in the exchange No gain/loss recognized on exchange Permits reporting entities to adjust the security’s basis (decrease) for the float compensation received.

Investment Schedules Bonds – Bank Loans Report as affiliated or unaffiliated, as well as issued or acquired

Investment Schedules 2018-03; Revises SSAP No. 43R for reporting different lots of same CUSIP with different NAIC designation Option Report in aggregate at the lowest NAIC designation, or Report separate aggregations by NAIC designation Adopted at August Meeting

Investment Schedules Stocks Market Indicator no longer being used Column removed from the reporting of common stock No longer part of NAIC Designation for preferred stock Includes those with underlying characteristics of preferred stock on Schedule BA Existing electronic columns indicate where fair value was obtained

Investment Schedules Preferred Stock “P” and “RP” prefixes no longer used as part of NAIC Designation Reporting category used to designate separate perpetual preferreds from redeemable preferreds

Investment Schedules Common Stock New reporting categories Separation of publicly traded and other Unit Investment Trusts, Closed-End Funds Both defined in SSAP No. 30R; adoption of Issue Paper 158

Investment Schedules Common Stock Addition of NAIC Designation column To be used ONLY for fund investments assigned a designation by SVO Funds that only or predominately hold fixed income assets Foreign (non-SEC registered) open-end funds Allowed to be reported as mutual funds in Schedule D # used in Code column to identify Foreign open-end funds defined as funds governed and authorized in accordance with regulations established by the applicable foreign jurisdiction

Investment Schedules Schedule DB Part A Part B New reporting categories for hedging effective instrument for variable annuity guarantees under SSAP No. 108 New section for SSAP No. 108 Adjustments Part B Parts A and B – Verification New line for reporting SSAP No. 108 adjustments New Part E Reporting of specific derivatives and the hedging programs subject to SSAP No. 108 18 columns of reporting

Investment Schedules Item 2018-18, effective 12/31/2019 SSAP No. 2 Regardless of maturity date, derivatives not reported as cash equivalents or short-term investments; report in Schedule DB SSAP No. 26R Securities meeting para 3 definition BUT contractual amount paid at maturity & at risk for other than failure of borrower to pay contractual amount due (structured notes), excluded from 26R reporting Report as derivative under SSAP No 86 in Schedule DB

Investment Schedules Item 2018-18, effective 12/31/2019 SSAP No. 43R Guidance added for mortgage-referenced securities Must be issued by government sponsored enterprise Currently only offered by Freddie Mac and Fannie Mae 12/31/2019 SSAP No. 86 Inclusion of structured notes

Investment Schedules 2019-03; Revises several SSAPs for affiliated (related party) transactions Applies concepts of SSAP No. 25 to investment SSAPs Includes situation when transaction between related parties is conducted through a non-related intermediary Adopted at August meeting

Investment Schedules Supplemental Investment Risks Interrogatories New instructions for funds for Line 2 – Single 10 largest exposures For non diversified funds, identify actual exposures and aggregate with directly held investments to determine 10 largest exposures New disclosure of ten largest fund managers

LAH/Fraternal Statement LAH and Fraternal combined into one statement beginning 2019 New format for Analysis of Operations Separate reporting page for types of insurance Individual life, group life, individual annuities, group annuities, A&H Summary page (grand total page) Applies to general and separate accounts

LAH/Fraternal Statement Analysis of Operations, Individual Life Analysis of Operations, Group Life

LAH/Fraternal Statement Analysis of Operations – Individual & Group Annuities

LAH/Fraternal Statement Analysis of Operations – A&H

LAH/Fraternal Statement Analysis of Operations – Summary page Addition of Appendix containing definitions of the lines of business Expense allocation instructions moved to the Appendix Elimination of Interest Sensitive (1) and Annuity Operations supplements (2) Information now provided in the Analysis of Operations

LAH/Fraternal Statement Analysis of Reserves Same division of business types as used or Analysis of Operations Same columnar format Exhibit 6 – A&H Business New columnar reporting (lines remained the same)

LAH/Fraternal Statement General Interrogatories Does company use derivatives to hedge variable annuity guarantees subject to fluctuations

LAH/Fraternal Statement Note #32 – Analysis of Annuity Actuarial Reserves and Deposit Type Contract Liabilities by Withdrawal Characteristics New line added to reporting format to identify surrender charges over 5% in the current year that will be less than 5% in the subsequent year for Individual Annuities New sections added for Group Annuities Deposit-Type Contracts From revisions to SSAP No. 52

LAH/Fraternal Statement New Note #33 – Analysis of Life Actuarial Reserves and Deposit Type Liabilities by Withdrawal Characteristics Disclosure of account value, cash value and reserve Separate reporting for general account and separate account nonguaranteed Revisions from SSAP No. 51R

LAH/Fraternal Statement Asset Valuation Reserve (AVR) Revision of AVR factors Revisions related to Life RBC factor changes in 2018 due to the Tax Cuts and Jobs Act VM-20 Reserves Supplement Which products are to be reported on which lines More specific than previous Columnar reporting revisions, including the reporting of deferred premium asset

LAH/Fraternal Statement Separate Accounts Assets page Deletion of Contract Loans reporting line SSAP No. 49 – Policy Loans and SSAP No. 56 – Separate Accounts indicate that all policy loans are to be reported in the general accounts

Property/Casualty Note #31A(1) – High Deductibles Annual Statement Line of Business Column split Line # Description

Property/Casualty State Page – Exhibit of Premiums & Losses New Line 29 for reporting of International business Previously treated as a write-in Created crosscheck problems Although new line will appear on all state pages, provide data ONLY on the “Other Alien” page and the “Grand Total” page Consistency with Underwriting and Investment Exhibit pages For printing purposes, the font size for the page was also reduced

Property/Casualty Changes to Actuarial Opinion requirements Mostly instructional changes Definition of “qualified actuary” Changes to Exhibit B, which is data captured To be voted upon on August Blanks Working Group conference call Still Pending

Health Statement No Health-specific revisions!!!

Risk-Based Capital

All RBC Formulas New RBC procedures Preamble (exposed for comment) C0, R0, H0 Renamed Insurance Affiliates and Misc. Other No formula changes Health Stop Loss Interrogatories Split between specific stop loss and aggregate stop loss

Property/Casualty RBC PR017 & PR018 Annual updating of Line 1 factors Updating of Line 4 factors Industry Loss & Expense RBC% Asset Concentration Indicate reporting of unaffiliated preferred stock only Instructions Correct overlooked 2018 instructional change for treatment of affiliated bonds

Property/Casualty RBC Excessive Premium Growth Revisions to match instructions with reporting format calculation Was conflict between instructions and formula computation for selected average growth rate Instructions changed to match formula calculation

Life/Fraternal RBC Combined the two RBCs into one Reference changes on LR024 because of statement Exhibit 6 changes Growth Operational Risk eliminated Revised cash flow modeling for variable annuities and similar products for C-3 Transition for 2019; two options available

Health Asset Concentration Growth Operational Risk removed Correct bond and preferred stock lines descriptions Growth Operational Risk removed

Questions

Contact Information Connie Jasper Woodroof c.jasperwoodroof@sapiens.com 800.373.3366 x5761