ICP 20 – U.S. Statutory Financial Reporting ASSAL – April 2015 Sharon Clark Commissioner of Insurance Kentucky Department of Insurance ©2015 National Association of Insurance Commissioners

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. ©2012 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

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 ©2015 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

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.). ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2012 National Association of Insurance Commissioners 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. ©2012 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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). ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners 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. ©2015 National Association of Insurance Commissioners

©2015 National Association of Insurance Commissioners Questions? ©2015 National Association of Insurance Commissioners