1. ICP 20 – U.S. Statutory Financial Reporting
ASSAL – April 2015
Sharon Clark
Commissioner of Insurance
Kentucky Department of Insurance
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2. INSURANCE CORE PRINCIPLE 20 – PUBLIC DISCLOSURE
The supervisor requires insurers to disclose relevant, comprehensive and adequate information on a timely basis in order to give policyholders and market participants a clear view of their business activities, performance and financial position. This is expected to enhance market discipline and understanding of the risks to which an insurer is exposed and the manner in which those risks are managed.
The NAIC maintains annual and quarterly statement templates (called blanks) that are used by all insurers of a particular type.
These blanks are the primary vehicle for public disclosure in the U.S. insurance system.
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3. NAIC Statutory Accounting
Focus on Policyholder Protection
Includes Conservatism (e.g., Nonadmitted Assets)
Statements of Statutory Accounting (SSAP) Provide the top level requirements for statutory financial statements
Issued by SAP WG
State statutes and regulations override the SSAP requirements
Similarly, a permitted practice granted for a specific insurer overrides the SSAP
Material differences from SSAP are required to be disclosed in Note 1 – impact to surplus & income
Different from GAAP – which is the accounting used by publicly traded entities and focuses on the consolidated group – statutory accounting is primarily for the benefit of insurance regulators.
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4. Accounting Disclosures
SSAPs include disclosure requirements
Accomplished as Notes to Financial Statement disclosures, or
Through presentation in schedules, exhibits of, or supplements to, the statutory financial statements
Audited portions of statements identified in SSAPs
SSAPs include definitions for accounting that translate to reporting
Bonds are defined to include commercial paper;
Everywhere bonds are reported in the Blanks, commercial paper are included
Long-term vs. short-term defined, etc.
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NAIC Blanks
Separate Blank for each major type of insurance/insurer called a Statement Type:
Life (Blue book)
Fraternal (Brown book)
Property/Casualty (Yellow book)
Health (Orange book)
Title (Salmon book)
Annual Statement and Quarterly Statements for first 3 quarters of the year
Filed Statements are Public Documents
Despite the purpose of statutory accounting being primarily for regulators, the statutory financial statements (filed on the appropriate Blanks template and using Statutory accounting) are publicly available for use by others.
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6. NAIC Statement Instructions
Each Statement Type Blank has an associated NAIC Statement Instructions manual – Annual and Quarterly versions
Provides instructional guidance for items not considered self-explanatory and/or not evident from the format and verbiage in the Blank itself
Provides validation logic
Validations are consistency checks that run on the electronic data filed with the NAIC.
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7. Annual and Quarterly Filings
Filing Deadlines
Annual statement for 1/1/xxxx thru 12/31xxxx due on 3/1/xxxx+1 (60 days after year-end)
Quarterly statements for 1st three quarters of year (due 45 days after quarter-end)
1/1/xxxx thru 3/31/xxxx due on 5/15/xxxx
4/1/xxxx thru 6/30/xxxx due on 8/15/xxxx
7/1/xxxx thru 9/30/xxxx due on 11/15/xxxx
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8. Annual/Quarterly Statement
Jurat Page
Demographic Information, Attestation
Balance Sheet, Income Statement and Cash Flow Statement
Exhibits and Schedules provide more detail to various balance sheet and income statement items
Schedule T and State Page
Schedule Y organizational chart and affiliated transcation listings
This is a high level description of what data is collected in the annual and quarterly statutory financial statements (aka blanks).
We will quickly go through some examples that show some of these pages, schedules and exhibits.
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Supplemental Filings
Differences for a Supplement to the Annual or Quarterly Statement
Not required to be bound in the actual Annual or Quarterly Statement; some are confidential
Supplemental filings can have different filing deadlines than the Annual/Quarterly Statement
Management’s Discussion & Analysis is a supplement to the Annual Statement, but due 4/1/xxxx+1
Supplemental filings can be optional
Credit Insurance Experience Exhibit only if write credit insurance
These are the ways Supplements to the Annual Statement (or to the Quarterly Statement) differ from the Annual/Quarterly statement.
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10. Annual Supplement Deadlines
Required Supplements (not dependent upon business)
March 1 deadline
Actuarial Opinion
Risk-Based Capital (confidential filing)
Supplemental Compensation (regulator only in hard copy)
April 1 deadline
Investment Risk Interrogatories
Management’s Discussion & Analysis
Insurance Expense Exhibit
May 1 deadline
Combined Annual Statement
June 1 deadline
Accountants Letter of Qualification
CPA Audit Report
These are the filing deadlines for required supplements to the property/casualty annual statement blank.
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11. Annual Supplement Deadlines
Only file if applicable
March 1 deadline
Financial Guarantee Insurance Exhibit
Medicate Supplement Insurance Exhibit
Trusteed Surplus Statement
Bail Bond Supplement
Actuarial Opinion Summary (regulator only hard copy)
April 1 deadline
Credit Insurance Experience Exhibit
A&H Policy Experience Exhibit
Long-term Care Experience Reporting Forms
These are examples of filing deadlines for supplements that are only required to be filed if the business or situation applies to the filing insurer (i.e., only file the Bail Bond Supplement if the insurer writes bail bonds, etc.).
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Jurat Page
Key Company Demographic Information Provided:
NAIC Company Code (unique identifier)
Legal Name
State of Domicile
Commenced Business Date and Incorporated Date
Addresses of Books/Records and Administrative Office
Financial Statement Contact Person Information
Officers and Directors or Trustees are listed
Also, the Attestation paragraph, where 3 key employees (usually CEO, CFO/Treasurer, and Chief Actuary) attest to the accuracy and completeness of the financial statement, as well as its compliance with the NAIC Accounting Manual and Annual Statement Instructions.
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13. Key Financials in Blanks
Assets Page
Liabilities Page
Exhibit of Net Investment Income
Notes to Financial Statements
General Interrogatories
5-Year Historical Data Exhibit
State Page
Schedule T
Schedule D, Part 1
We will see the Blank page for each of these except the Notes to Financial Statement:
The Notes to Financial Statement is a lengthy section full of text and numeric disclosures required by the Statements of Statutory Accounting Principles (SSAPs).
The text portions of the Notes are free-form and differ by insurer, so there is no standard to show. However, the Annual Statement Instructions provides illustrations of examples for insurers.
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Assets
Page
The Assets Page is a uniform template for all statement types (life, P/C, etc.)
The fixed lines (e.g., Line 1 for bonds) are assets common throughout the industry.
The write-in lines are used for assets not common to the industry, but owned by one or a few insurers.
Invested assets are listed first, and subtotaled, as there are various financial ratios that utilize total invested assets.
Then the remaining assets are listed and a total assets is provided.
For life insurers, there is a total assets BEFORE separate accounts assets, then the separate accounts assets are listed in total, and then a final total WITH separate accounts is provided.
As a conservative basis of accounting, statutory accounting includes nonadmitted assets, which is why you see this column for nonadmitted assets and the net admitted assets column (gross assets less nonadmitted assets). The net admitted assets column is the statutory asset column that will equal total liabilities plus capital and surplus.
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Liab. Page - Life
The Liabilities Page is unique for each statement type, as they differ quite a bit by industry segment.
Current Year and Prior Year information is presented for comparison purposes, and this is common for many of the financial statement pages and exhibits.
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The Exhibit of Net Investment Income lists out interest, dividends and other investment income items by asset class.
Realized and Unrealized Gains are listed in a separate schedule by asset class.
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The notes to financial statement include both textual and quantitative disclosures required by the Statements of Statutory Accounting.
The first note is important, as it describes the accounting used and identifies any differences from the SSAPs (permitted or prescribed accounting practices) along with their impact to net income and to surplus.
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General Interrogatories ask specific questions related to various operational, governance and financial items.
The Part 1 Interrogatories are common to all statement types, but the Part 2 Interrogatories are specific to each statement type.
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The Five-Year Historical Data Exhibit displays the results of key financial statement line items, ratios and RBC results for the past 5 years.
Financial analysts use this page quite a bit.
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State Page - Life
The State Page shows various items such as premiums and claims amounts for a particular state.
A State Page is filed for all states in which the insurer writes business or for which the insurer records amounts (information is usually reported based upon policyholder residence, so if a policyholder moves to a state in which the insurer is not licensed, the insurer must still record amounts for that policyholder in the non-licensed state’s State Page).
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Schedule T provides a quick summary of the premiums written by state and other foreign jurisdictions.
Keep in mind, these filings are for the legal entity insurer, not for the entire group! So if the legal entity does not write outside of the U.S., there will be no entries for the non-US jurisdictions.
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The investment schedules are uniform for all statement types.
Schedule D, Part 1, is a good example to show, as it records each long-term bond held, listed by CUSIP number (public US securities), Private Placement Number (for private securities), or CINS (for foreign securities).
The various investment schedules represent the most detailed data collected in the statutory financial statements.
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Questions?
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