ASU 2015-09 Short Duration Contracts – New GAAP Disclosures October 19, 2017

New Disclosure Requirements for P&C Insurance Background Key provisions Disclosures Disaggregation Claim counts Regulatory

Background Issued May 2015 by FASB FASB thought no additional burden since already preparing Schedule P Applicable only to short-term duration contracts (ASC 944-20-15-7) Contract is for a fixed period of short duration Contract can be cancelled and at the end of contract period can adjust provisions Requires additional disclosures Effective date: Periods beginning after 12/15/15 – public (2016 y/e) Periods beginning after 12/15/16 – private (2017 y/e)

Required Disclosures Tabular presentation of undiscounted, incurred claims and allocated claim adjustment expenses by AY (accident year), net basis, for up to 10 years (triangle) Tabular presentation of paid claims by AY, net basis, for up to 10 years (triangle) IBNR as of balance sheet date by AY Cumulative claim count information for each AY Reconciliation of claims development tables to balance sheet liabilities Historical average annual percentage payout of incurred claims

Required Disclosures (continued) Description of methodology for determining IBNR Description of methodology for calculating claim counts Explanation if it is impractical to prepare required disclosure Information regarding any loss reserves that have been discounted

Required disclosures – Incurred claims development table example

Required disclosures – Paid claims development table example

Required disclosures - Reconciliation

Required disclosures – Historical claims duration

Disaggregation Disclosures should be “aggregated or disaggregated” “Useful” information is not obscured by Insignificant detail Aggregation of items with significantly different characteristics Consider how liabilities presented for other purposes – i.e. board reports, CEO, CFO

Disaggregation (Continued) Categories to consider: Type of coverages – property vs liability, w/c, etc Claims duration Market or type of customer – personal lines vs commercial Occurrence vs claims made Number of years to disclose Period of time claims typically remain outstanding Not to exceed 10 years – if longer than 5 years should start with 5 in initial application

Claim counts For each disaggregated table, disclose cumulative counts as of balance sheet date by AY Describe whether counts are measured by claim event or individual claimant and how claims that do not result in a liability are considered Significant changes to the count methodology Identify situations where claim count information is unavailable and why it is impractical to disclose

Example disclosures The reserve to property-liability insurance claims and claims expense is an estimate based upon the facts of each case and the Company’s experience with similar cases. Reserve estimates are derived using an actuarial estimation process in which historical loss patterns are applied to actual paid losses and reported losses for an accident year to create an estimate of how losses are likely to develop over time. The cumulative number of reported claims is identified by coverage and excludes reported claims for industry pools and facilities where information is not available.

Example disclosures We establish and evaluate unpaid claim liabilities using standard actuarial loss development methods and techniques. The actuarial methods utilize historical claims data, adjusted to reflect perceived changes in loss patterns. IBNR liabilities are estimated by projecting the ultimate number of claims expected (reported and unreported) for each significant coverage and deducting reported claims to produce estimated unreported claims. The product of the average cost per unreported claim and the number of unreported claims produces the IBNR liability estimate. Claims are counted when accidents that may result in a liability are reported and are based on policy coverage.

Example disclosures Liabilities for unpaid losses and loss adjustment expenses include case and IBNR estimates. We evaluate reported loss amounts and if deemed appropriate, we establish case liabilities based on our estimates. We primarily use Bornhuetter-Ferguson methods to estimate IBNR amounts for claims liabilities. The expected case loss emergence patterns and expected loss ratios are the critical assumption applicable to these estimates. Claim count data is excluded, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

Regulatory Not necessarily intended for regulators Rejected by NAIC Have access to annual statement, actuarial analysis, etc Rejected by NAIC Vermont – issued memo 2017-06 – pure captives can request permitted practice to have qualified opinion Missouri – can also request waiver Utah – has not issued memo – would like captives to try to comply with standard, but will issue permitted practice on a case by case basis or will accept qualified opinion

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