2014 IASA Fall Conference

1. 2014 IASA Fall Conference Statutory Accounting Update

2. Introduction • Andrew Rouse, CPA • Senior Manager – Insurance Services • Plante Moran • Andrew.Rouse@plantemoran.com • 312-980-3236 (direct dial) • Jeffrey Newton, CPA • Manager – Insurance Services • PlanteMoran • Jeffrey.Newton@plantemoran.com • 517.336.7482 (direct dial)

3. Agenda • Discuss new SAP’s effective for 2014 • SSAP 104R, 105 and 106 • Non-substantive changes to SAP during 2014 • Exposure drafts outstanding • Changes to Annual Statement and 2015 Quarterly Statements

4. SSAP 104R (Share-Based Payments) • SSAP 104 issued in August 2012 effective January 1, 2013 • Replacement of SSAP No. 13 • Effectively adopted GAAP accounting guidance related to share-based payment transactions (FAS 123R, Topic 718) • Substantively revised December 2013 effective December 31, 2014: • SSAP 104 provided guidance for equity-based payments to employees, but did not address payments to non-employees such as independent producers and company directors • SSAP 104R adopts, with modification, GAAP guidance as reflected in Accounting Standards Codification 505-50, Equity Payments to Non-Employees (ASC 505) • SSAP 104R adopts the GAAP guidance including fair value measurement of the awards with three modifications: (1) nonadmit any prepaid assets, (2) disallows the minimum value method, and (3) requires the midpoint of range to be used for estimation (compared to the low point for GAAP) • Disclosures for non-employee share based payment similar to those for employee share based payments

5. SSAP 105 (Working Capital Finance Investments) • Standard issued in December 2013 effective January 1, 2014 • Affects no other pronouncements • Creates a new SSAP for Working Capital Finance Investments (WCFIs), allowing admitted asset treatment if certain conditions are met • WCFIs represent interests in short-term trade receivables that insurers can purchase through a finance agent • Treated as admitted assets with accounting similar to short-term investments, if approved by the SVO and rated NAIC 1 or 2 • Insurer must submit annual filing to the SVO including audited financials of the finance agent • Disclosures include fair value, concentrations of credit risk, information regarding book/adjusted carrying value by designation and maturity date, and any events of default

6. SSAP 106 (Affordable Care Act Assessments) • The Affordable Care Act (ACA) imposes an assessment on entities that issue health insurance for each calendar year beginning on or after January 1, 2014 (Section 9010 of ACA). • Fee is allocated to individual health insurers based on the ratio of the amount of an entity’s net health premiums written during the preceding calendar year (data year) to the amount of subject health insurance written by all subject U.S. health insurance providers during the data year. • The ACA includes some significant exclusions regarding which entities are required to pay the assessment. The guidance in this statement applies to all reporting entities that are subject to the fee. • Total assessments pre-determined in the code section - total $8 billion in 2014 and increase annually to $14.3 billion in 2018 (indexed to premium growth thereafter). • SSAP 106 issued in June 2014 effective January 1, 2014 • Incorporates ACA Section 9010 revisions previously in SSAP 35R

7. SSAP 106 (Affordable Care Act Assessments) • The liability for ACA assessment shall be estimated and recorded in full once the entity provides qualifying health insurance for health insurers (typically January 1) in the applicable calendar year in which the assessment is paid (fee year) with a corresponding entry to expense. • The Section 9010 ACA assessment shall be recognized in full on January 1 of the fee year, in the operating expense category of Taxes, Licenses and Fees. • Liability recognition is not required in the data year. However, in the data year, the reporting entity is required to accrue in special surplus an amount equal to its estimated subsequent fee year assessment. The special surplus assessment is accrued monthly throughout the data year. • The reclassification from unassigned surplus to special surplus does not reduce total surplus. • On January 1 of the fee year, the prior year segregation in special surplus is reversed and the full current fee year assessment liability shall be accrued. • The Section 9010 ACA annual assessment does not represent a cost related to the acquisition of policies that is consistent with the definition of acquisition costs in SSAP No. 71—Policy Acquisition Costs and Commissions.

8. SSAP 106 (Affordable Care Act Assessments) • December 31, 2013 - disclosure of the assessment payable in 2014 consistent with the guidance provided under SSAP No 9 – Subsequent Events (Type II subsequent event). • For annual reporting periods on or after December 31, 2014, disclosure is expanded to include information on the amounts reflected in special surplus in the data year. • Amount of premium written for the current year that is the basis for the determination of the section 9010 fee assessment to be paid in the subsequent year • Information regarding the nature of the assessment, the estimated amount of the assessment payable in the upcoming year (current and prior year), and the amount of assessment paid (current and prior year)

9. 2014 Non-Substantive ChangesRecent Changes Adopted by SAPWG

10. 2014 Non-Substantive ChangesRecent Changes Adopted by SAPWG

11. (updated August 22, 2014) Exposure Drafts in Open Comment period

12. Other Regulatory Matters • Annual Financial Reporting Model Regulation • New requirement for large insurers (those above $500 million in premium) to have an effective internal audit function • Corporate Governance Annual Disclosure Model Act • All US insurers required to provide a narrative describing governance practices to their lead state or domestic regulator • Due by June 1 each year • New disclosure requirements to commence in 2016

13. Resource for Monitoring STAT • http://www.naic.org • Projects and exposure documents issued by the National Association of Insurance Commissioners • Select “Committees & Activities” • Go to Financial Condition (E) Committee under “Committees, Task Forces and Working Groups” • Select from the following: • “Statutory Accounting Principles Working Group” • “Emerging Accounting Issues Working Group”

14. Resource for Monitoring STAT (Continued)

15. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

16. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

17. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

18. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

19. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

20. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

21. Changes to Annual Statement (from http://www.naic.org/committees_e_app_blanks.htm)

22. Changes to 2015 1st Quarter Statement(from http://www.naic.org/committees_e_app_blanks.htm)

23. Questions?

24. Thank you