Statutory Accounting Principles Working Group s7

Ref #2016-34

Statutory Accounting Principles (E) Working Group

Maintenance Agenda Submission Form

Form A

Issue: Health Valuation Manual Updates

Check (applicable entity):

P/C Life Health

Modification of existing SSAP

New Issue or SSAP

Interpretation

Description of Issue:

This agenda item proposes updates to SSAP No. 54—Individual and Group Accident and Health Contracts to add references to the Valuation Manual for health reserving requirements. The Principle-based Reserving (PBR) project does not change health reserving in the initial phase. However, since the Valuation Manual references the applicable existing health reserving guidance in Appendix A of the Accounting Practices and Procedures Manual (AP&P Manual), and applicable actuarial guidelines in Appendix C, revisions to SSAP No. 54 to reference the Valuation Manual were deemed necessary prior to the Valuation Manual becoming operative on January 1, 2017.

This agenda item also proposes updates to the change in valuation basis guidance for health reserves to reflect the use of own company experience required in Actuarial Guideline XLVII - The Application of Company Experience in the Calculation of Claim Reserves Under the 2012 Group Long-Term Disability Valuation Table (AG 47) and Actuarial Guideline L-2013 Individual Disability Income Valuation Table (AG 50). These updates are related to the implementation of the 2012 Group Long Term Disability Valuation Table (2012 GLTD) and the 2013 Individual Disability Income Table (2013 IDI). AG 47 and AG 50 require use of credible own company experience for morbidity continuance. This agenda item recommends that use of credible own company experience for morbidity continuance as required by AG 47, AG 50 and the related tables, 2012 GLTD and 2013 IDI, should not be reported a change in valuation basis.

The recommendations within this agenda item were developed with input from the informal principles-based reserving drafting group which includes regulators, members of industry and various key stakeholders.

Existing Authoritative Literature:

· SSAP No. 54—Individual and Group Accident and Health Contracts

· Valuation Manual section VM-25 references applicable requirements of Appendix A, including A-010 Minimum Reserve Standards for Individual and Group Health Insurance Contracts.

· Valuation Manual section VM-25 references applicable requirements of Appendix C, including the following actuarial guidelines:

o XXVIII Statutory Claim Reserves For Group Long-Term Disability Contracts With A Survivor Income Benefit Provision (AG 28)

o XLIV - Group Term Life Waiver of Premium Disabled Life Reserves (AG 44)

o XLVII - The Application Of Company Experience in the Calculation of Claim Reserves Under the 2012 Group Long-Term Disability Valuation Table (AG 47)

o L - Actuarial Guideline L-2013 Individual Disability Income Valuation Table (AG 50)

· Valuation Manual section VM-25 Health Insurance Reserves Minimum Reserve Requirements provides the following:

A. Purpose

1. Reserve requirements for individual accident and health insurance policies issued on and after the valuation manual operative date and reserve requirements for group accident and health insurance certificates issued on and after the valuation manual operative date are applicable requirements found in the Accounting Practices and Procedures Manual (APPM), Appendix A, which includes A-10, and applicable requirements found in the APPM Appendix C, which includes AG28, AG44, AG47 and AG50.

Activity to Date (issues previously addressed by the SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): This agenda item is part of a larger project to develop changes to the AP&P Manual to facilitate implementation of PBR and implement new health long term disability tables. Agenda Item 2015-47 includes a tracking document of PBR implementation, but related agenda items include: 1) Agenda item 2015-12: Updated Appendix A-821 to reflect the 2012 GLTD. AG 47 provides implementation guidance for the 2012 GLTD and 2)Agenda item 2016-17: Updated Appendix A-010 to add the 2013 IDI. AG 50 provides implementation guidance for the 2013 IDI.

Information or issues (included in Description of Issue) not previously contemplated by the SAPWG: None

Convergence with International Financial Reporting Standards (IFRS): Not applicable

Staff Review Completed by: Robin Marcotte - NAIC Staff - September 2016

Staff Recommendation:

Staff recommends that the Working Group move this item to the active listing, categorized as substantive, and concurrently expose revisions to SSAP No. 54 as detailed in Attachment A and Issue Paper 15X—Implementation of Principle-based Reserving as detailed in Attachment B. The changes to SSAP No. 54 will be detailed for historical purposes in Exhibit B to Issue Paper 15X—Implementation of Principle-based Reserving (Ref# 2015-47) which summarizes changes to implement PBR. As this issue paper has previously been exposed, to reflect updates from prior agenda items, the updates to the issue paper from this agenda item are detailed below and reflected as tracked changes for ease of review in the draft issue paper.

Substantive revisions to SSAP No. 54 are shown in Attachment A. Changes to Issue Paper 15X—Implementation of Principle-based Reserving are shown in Attachment B and summarized below:

1. Revisions to paragraphs 9, 11, 12, 14, 15 and 27 incorporate the technical edits from the Academy and Interested Parties regarding the August 2016 exposure draft. In general the technical edits and make the description of PBR more consistent with the Valuation Manual.

2. Inserted a new paragraph in the Issue Paper Summary Conclusion to note the substantive revisions to SSAP No. 54 (if adopted, would become SSAP No. 54R) are detailed in Exhibit B.

3. The current Issue Paper Appendix A and Appendix B will be renamed to Exhibit A and Exhibit C, respectively. This change will provide consistency with AP&P editorial revisions.

4. Inserted new subsection in the Discussion Section describing the revisions to SSAP No. 54.

5. Updated information in the Issue Paper regarding actions of the Statutory Accounting Principles (E) Working Group.

6. Inserted a new quote citing Health Annual Statement instructions regarding the reporting of a change in valuation basis for health entities under Relevant Statutory Accounting and GAAP Guidance.

7. Inserted a quote citing the Valuation Manual VM-25 reference to the AP&P Manual to applicable health guidance in Appendix A and Appendix C.

Status:

On October 17, 2016 the Statutory Accounting Principles (E) Working Group moved this item to the active listing, categorized as substantive, and exposed substantive revisions to SSAP No. 54, as detailed in Attachment A, and Issue Paper 15X—Implementation of Principle-based Reserving, as detailed in Attachment B.

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