NAIC WINTER 2009 NATIONAL MEETING

By Carolyn Albertson and Alan Close

The Winter 2009 National Meeting of the National Association of Insurance Commissioners (NAIC) was held December 4 through 8 in San Francisco, California. 

During the conference, the NAIC adopted its 2010 operating budget.  The NAIC budget includes total revenues of $73.6 million and total expenses of $70.9 million, which represent a 0.7 percent increase and 0.8 percent decrease, respectively, from the 2009 budget, for $2.7 million in projected net revenue.  A public hearing held in November provided insurance trade associations and consumer representatives, as well as NAIC members, an opportunity to provide comments.  The budget contains no increase in the NAIC Database filing fee schedule. 

2010 officers were elected and will assume their duties on January 1, 2010.  The new officers are:

• President: West Virginia Insurance Commissioner Jane Cline
• President-Elect: Iowa Insurance Commissioner Susan Voss
• Vice President: Florida Insurance Commissioner Kevin McCarty
• Secretary-Treasurer: Oklahoma Insurance Commissioner Kim Holland

Changes to SSAP 10 adopted for year-end 2009.  The most important change that came out of the San Francisco meeting involved the adoption of changes to SSAP 10 (Income Taxes).  The changes have been considered by financial regulators since the fall and were extensively discussed at the Executive/Plenary session before being adopted.  The primary issue concerned finding the appropriate amount of conservatism in the calculation of an insurer's admissible deferred tax assets. 

Per the NAIC, “Deferred tax assets represent a difference between an insurers’ statutory and tax accounting values that will reverse in the future, and when reversed, will create lower taxes for the insurer in the future.  One of the most common examples of a deferred tax asset results from the higher statutory policyholder reserves and the related lower reserve for tax purposes.  Deferred tax assets (and liabilities) are recognized by all types of entities who file financial statements using US Generally Accepted Accounting Principles or International Financial Reporting Standards.  U.S. insurance regulators have required deferred tax assets and deferred tax liabilities to be recognized in statutory financial statements since 2001, but the amount of such assets that can be recognized is significantly limited under an admissibility formula.  With the adopted change, the amount of deferred income tax assets is still significantly limited, but some of the over-conservatism has been reduced.”

The change is effective for insurers’ year-end 2009 statutory financial statements and the impact of the change will be disclosed in the notes to financial statements in the insurers’ statutory filings.  It is expected that this action will increase insurers’ surplus by $11 billion for 2009.

ACCOUNTING PRACTICES AND PROCEDURES TASK FORCE

The Accounting Practices and Procedures Task Force adopted the reports from three of its four working groups: the Blanks Working Group, the Emerging Accounting Issues Working Group, and the Statutory Accounting Principles Working Group.  The fourth group, the Property and Casualty Reinsurance Study Group did not meet during this past quarter. 

The agenda of the Blanks Working Group included five proposals for discussion.  One proposal had a suggested effective date of Annual 2010 and the remaining four proposals had a suggested effective date of first Quarter 2011.  Four proposals were modified and then adopted.  The proposal with the effective date of Annual 2010 can also be considered as guidance for Annual 2009.  The fifth proposal was deferred to the March meeting.  (Details of the proposals are found in the attached chart titled “Blanks Working Group – Proposals – Adopted December 2009”.) 

Ten newly submitted items were exposed for comment and will be discussed at the March meeting.  The comment period for the proposals ends on February 24, 2010.  All ten of the proposals suggest an implementation date of Annual 2010.  One proposal (2009-41) was exposed as guidance to use for 2009 year-end reporting.  

The Blanks Working Group also adopted a list of six editorial changes.  One of the changes is effective for the 2009 Annual Statement.  That change modifies the instructions for Schedule D – Part 6 – Section 1.  The codes to be used in Column 5 have been updates to reflect the location in the reformatted SVO Purposes and Procedures Manual.  Most of the remaining changes are corrections or clarification to the instructions.  Detail of the changes is posted on the NAIC website. 

The Blanks Working Group currently has no active Ad Hoc Subgroups, so there were no reports to receive.  However, under other matters, the Blanks Working Group received a memo from the Life and Health Actuarial Task Force regarding non-binding guidance that can be used by life insurers when completing General Interrogatory 9.2.  With the implementation of Actuarial Guideline XLIII, there may be some issues causing questions on how to complete the interrogatory. 

Recommended guidance for year-end 2009 was received from the Statutory Accounting Principles Working Group regarding disclosures adopted for year-end 2009 dealing with deferred tax assets, subsequent events, and financial guaranty insurance.  The guidance will be posted on the NAIC website.  In addition, 2009 guidance for line 2 of the IMR and AVR for other than temporary impairments, 2009 guidance for Note 5 (D) 4 and 5 (D) 5, and 2009 investment category breakout guidance was adopted by the Blanks Working Group.  Following guidance is not mandatory. 

The Emerging Accounting Issues Working Group is the group that provides authoritative guidance on current statutory accounting issues.  Once finalized, the guidance becomes effective immediately.  Because of this, it is important that insurers monitor the activities of this group.  The deadline for comment on exposed items is February 11, 2010. 

The Statutory Accounting Principles Working Group has the responsibility of developing and proposing new Statements of Statutory Accounting Principles (SSAPs).  The SSAPs represent the top level of requirements in the statutory hierarchy of accounting requirements and are included in the NAIC Accounting Practices and Procedures Manual.  New SSAPs are developed periodically that: 1) address issues not covered by existing Statutory Accounting Principles (SAP) guidance; 2) amend existing SSAPs; or 3) supersede existing SSAPs.  The group followed its usual format and held a hearing and a regular meeting.  At the hearing, comments on previously exposed items were addressed.  The final actions taken during the hearing are summarized in the chart titled “Statutory Accounting Principles Working Group – Hearing Agenda”. 

Next, the working group moved to their regular MEETING and discussed the items on the Maintenance Agenda – PENDING LIST and SUBSTANTIVE ACTIVE LIST.  There were no items on the group’s NON-SUBSTANTIVE ACTIVE LIST.  The actions taken are shown in the chart titled “Statutory Accounting Principles Working Group Maintenance Agenda – Exposed for Comments.”  Comment deadline for issues newly exposed from the MEETING or re-exposed at the HEARING is February 11, 2010, unless otherwise noted.  Exposed items can be viewed on the NAIC website.  Comments and concerns on these items may be expressed during the exposure period. 

VALUATION OF SECURITIES TASK FORCE

The chair of the Valuation of Securities Task Force (VOSTF) provided an update on Residential Mortgage-Backed Securities (RMBS) noting that the VOSTF should extend the short-term solution until the long-term plan is in place to avoid going back to the FE (filing exempt) process.  The VOSTF adopted this extension.  RMBS instructions were adopted and are available on the NAIC website.  The VOSTF also placed RMBS under regulatory review that effectively overrides the FE process.

The VOSTF adopted the 2010 charges for the Invested Assets Working Group (IAWG) that modifies the mission of the IAWG to provide continuity in and manage the NAIC processes related to the development of regulatory rules.  The IAWG did not meet this quarter, so no report was given. 

A memo from the North American Securities Valuation Association (NASVA) was discussed related to the language in Part 4, Section 3(g) of the manual for 6* designated securities.  NASVA stated that it is no longer necessary for the SVO to continue to assign a price to 6* securities.  SVO staff does not support the change.  The NASVA proposal was exposed for 30 days

The chair also reported that RealPoint, LLC will provide the rating for CMBS but the company does not have a rating delivery process like other AROs.  Consequently, the process will likely be a manual one.  NAIC will have the data in their system.

Following a discussion of hybrid securities that are not rated, the SVO was directed to develop a document identifying the pros and cons to various alternatives for rating.

A referral from the Statutory Accounting Principles Working Group was received regarding information on valuation techniques utilized by the SVO as it relates to the recently adopted SSAP 100, Fair Value Measurement.  It is unclear as to the sources used by the SVO in determining fair value.  Greater transparency is needed to achieve the reporting objective.  SVO will draft a paper addressing this request and make it available by the March meeting.

Finally, the SVO will exam various resources and develop a draft position paper that defines 1^st lien RMBS and CMBS securities that incorporate mixed collateral and criteria that would result in classification as 2^nd lien securities.

CAPITAL ADEQUACY TASK FORCE

The Capital Adequacy Task Force (CATF) chair reported that the recently approved Residential Mortgage Backed Securities (RMBS) guidance should not have any direct RBC effect since the procedure will set the NAIC designation codes (1-6) to be used in the RBC calculation.  PIMCO, the vendor hired to do the review, is expected to process about 22,000 securities and have the results available by year-end.  The Valuation of Securities Task Force will be working on a long-term RMBS solution during the first quarter 2010 since there is no desire to revert to the former method.  Interim guidance for the proposal along with details on RMBS is posted on the NAIC Web site.  In addition, a subgroup of the Statutory Accounting Principles Working Group will be reviewing valuation, reporting, RBC and accounting for RMBS.

CATF adopted a recommendation to extend the decision-making process for changes to RBC to year-end.  This change was primarily a result of the decision to only conduct three national meetings each year rather than quarterly.

The Task Force discussed a project to review the P/C formula for systemic risk as a result of the recent financial crisis.  Some regulators noted that the current RBC formula doesn’t take into account all risks.  The project should also consider international discussions on the same topic.  The chair noted that any project should include all insurance business types (Life, Fraternal, Heath, etc.)

An update was given on a modification to Schedule P that would add 10 years of data for all lines of business.  Before preparing a Blanks proposal, NAIC staff were asked to work with regulators to assess the quality of current information.  Validation of RBC Schedule P data filed for two-year lines of business will be pursued rather than requiring ten years of data in the electronic submission. 

CATF received a report from the Minnesota Insurance Department about its RBC approach for fraternal organizations.  The Task Force will consider the MN plan as it continues discussion of a fraternal model.  A significant difference between the MN RBC approach and the NAIC approach is that MN only has two control levels rather than three.

Finally, the chair informed the members that a December 17^th call will be held to discuss RBC effect related to deferred tax assets (DTAs).  AAA will be asked to provide their input on a long-term solution taking into account current U.S. GAAP accounting as well as any state limitations.  Also, a February conference call will be held to decide whether the Risk-Based Capital (RBC) for Health Organizations Model Act should become an accreditation standard.

Most of the work accomplished by the Task force and its three working groups occurs on conference calls held prior to the National Meeting.  The only working group that did meet during the week was the Life Risk Based Capital Working Group.  The Working Group (WG) adopted the minutes of interim conference calls and took action on the following items.

• Derivative Risk Mitigation Proposal:  The WG discussed the American Council of Life Insurers (ACLI) Derivatives Risk Mitigation Proposal, which is intended to address credit risk mitigation for reducing the C-1 risk through the use of derivative hedges.  The ACLI described changes to the previous draft reflecting comments and recommendations from the WG.  The changes include adding an executive summary; modification to conform equity hedging correlation instructions within the document; detailed instruction to increase the specificity of the method for determining risk reduction for hedging a portfolio of bonds with a derivative tied to an index (e.g., CDX), and a more granular and technically supportable maturity mismatch table; an addition to properly link the bond and common stock risk reduction calculations to the Bonds (LR002) and Unaffiliated Preferred and Common Stock (LR005) RBC calculations.  Since the plan is to have this proposal effective for 2010, there is a need to expedite a decision.  After considerable discussion, the WG decided to limit the scope of the changes to basic hedges, i.e., one-for-one and not rush proposed changes on the more complex hedges, e.g., index hedges.  A simplified version will be exposed for comment with a short two week comment period.  The WG agreed to a conference call later in December to finalize action on this proposal.

• C-3 Phase III Proposal: The WG briefly discussed the report from the American Academy of Actuaries (AAA).  This report addresses the project scope that is intended to develop a methodology for capturing C-3 risk for life contracts.  The chair noted that this initiative should not cause a structural RBC change.  The AAA report was exposed for a 45 day comment period.  The goal is to finalize the guidance at the March 2010 NAIC meeting. 

• Other.  Both the ACLI proposal on the RBC treatment of mortgage loans and the derivative collateral proposal will be discussed on future conference calls. 

FINANCIAL CONDITION (E) COMMITTEE

The Financial Condition (E) Committee is the parent group for seven task forces.  In addition to the three task forces and related working groups already reported on, summaries of its four other task forces are described below.  The reports from all of its task forces were adopted.  The activities of the Financial Condition Committee’s ten working groups/subgroups are also recapped in this article. 

The Financial Condition Committee adopted a White Paper on Alternative Mechanisms for Troubled Companies, as proposed by the Restructuring Mechanisms for Troubled Companies (E) Subgroup.  The information in the paper provides guidance to regulators.  The group also adopted a proposal for the Modeling Process for Residential Mortgage-Backed Securities to remain in effect for first quarter 2010.  This will still have to be ratified by the Executive Committee and Plenary. 

The fourth task force, the Examination Oversight Task Force, through its working and technical groups, is involved in a variety of projects.  The task force adopted new risk-focused exam repositories for inclusion in the NAIC Financial Condition Examiners Handbook.  The newly created exam repositories assist the examiner in identifying the risks that are often inherent within some of the more standard key activities of a typical insurance company.

The task force discussed a survey of the states regarding progress toward adopting the revised Model Regulation to Define Standards and Commissioner’s Authority for Companies Deemed to be in Hazardous Financial Condition (#385).  Based on the results of the survey, five states have adopted the 2008 revisions to the model.  Four states indicated that adoption would take place in 2009, sixteen in 2010, and 5 in 2011.  Two states do not plan to adopt the changes. 

• The Financial Analysis Handbook Working Group adopted some amendments to the 2009 Financial Analysis Handbook.  Chapters modified include Level One, Holding Company and Audit Opinions, RBC and Actuarial Opinion for Health and the New Fraternal Level One. 

• The Financial Examiners Coordination Working Group is proposing changes to the association examination concept.  It is developing guidance on a framework for coordinating exams of holding company groups. 

A fifth task force is the Receivership and Insolvency Task Force.  Its mission relates to issues concerning insurer insolvencies and insolvency guarantees.  It discussed a matrix highlighting issues and possible solutions described within comment letters received from interested parties and regulators regarding solutions to address concerns with the timing and collection of reinsurance recoverables held by insurers in receivership.  The Task Force intends to discuss the issues and possible solutions during future Task Force meetings.

The Reinsurance Task Force is the sixth task force reporting to the Financial Condition Committee.  In the fall, this task force adopted the Reinsurance Regulatory Modernization Act of 2009, and agreed to send the legislation to the Government Relations Leadership Council for its immediate review and consideration of next steps, including direct submission of the legislation to Congress for further action.  This federal legislation is the first step in implementing the Reinsurance Regulatory Modernization Framework that was adopted by Plenary in December 2008. 

Note:  In the fall, the NAIC’s Government Relations Leadership Council (GRLC) had approved for submission to Congress the Reinsurance Regulatory Modernization Act of 2009, a proposed federal bill that would modernize the regulation of reinsurance by the states.  The legislation would create two new classes of reinsurers in the U.S.: National Reinsurers (US) and Port of Entry Reinsurers (non-US).  In order to transact reinsurance business in the U.S., National Reinsurers would be licensed through a single Home State, while Port of Entry reinsurers would be certified through a single Port of Entry State.  Reinsurers would continue to have the option of operating under the existing regulatory approach.  The legislation also provides for the establishment of the Reinsurance Supervision Review Board as a federal entity responsible for evaluating states and non-US jurisdictions.  State insurance supervisors would be responsible for evaluating their respective National and Port of Entry Reinsurers and establishing appropriate collateral requirements for reinsurance agreements.  State laws with credit for reinsurance requirements different from the federal legislation would be preempted as to National and Port of Entry Reinsurers.  The move by the NAIC came 15 days after the U.S. House of Representatives approved legislation on the same topic.  The Non-admitted and Reinsurance Reform Act approved on September 9 is not as comprehensive as the NAIC version. 

The seventh and final task force of the (E) Committee is the Risk Retention Group Task Force.  The task force discussed the Annual Financial Reporting Model Regulation (Model Audit Rule) and the corporate governance standards for risk retention groups licensed as captive insurers.  Significant revisions to the model were adopted in 2006 and require that insurers comply with certain best practices related to auditor independence, corporate governance, and internal controls over financial reporting.  Corporate governance standards specific to RRGs were adopted by the Property and Casualty Insurance Committee in 2007.  The Task Force discussed specific sections in the model that will be required for traditional insurers for accreditation purposes and noted that some of the requirements related to audit committees and independence conflict with related guidance in the corporate governance standards.  The Task Force agreed that it would be acceptable for a state to adopt either the requirements in the model or the corporate governance standards.  NAIC staff will draft updated guidance that will be discussed on an interim conference call.

The (E) Committee also adopted reports from five of its ten working groups/subgroups.  Three of the working groups (Capital and Surplus Relief Working Group, Credit Default Swap Working Group, Financial Guaranty Insurance Guideline Working Group, Investment of Insurers Model Act Revision Working Group and the Separate Accounting Risk Charge Working Group) did not meet and therefore had no reports. 

The Financial Analysis Working Group once again met in a regulator-to-regulator session and heard presentations on nationally significant insurers that are showing characteristics of potentially troubled companies.  The group determines if appropriate actions are being taken. 

The NAIC/AICPA Working Group addresses a number of important issues.  Noteworthy activities during the meeting:

• The Group received a status report describing recent activities of the AICPA Auditing Standards Board (ASB).  The report indicated that ASB voted to issue six Statements of Auditing Standards (SAS) related to risk assessment to clarify existing language and to converge with International Standards on Auditing.  The Statements include:

In addition, the ASB issued Proposed Statements on Auditing Standards, Terms of Engagement, and Written Representations.  Noteworthy is that the proposed SAS-Terms of Engagement, requires the auditor to obtain the agreement of management that it acknowledges and understands its responsibility for selecting the appropriate financial reporting framework, establishing and maintaining internal control, and providing access and information to the auditor.  It is appropriate to require that management’s responsibilities be explicit in the engagement letter because there is no point in starting an audit if management won’t acknowledge its responsibilities.  The effective date would apply to audits of financial statements for periods beginning on or after December 15, 2010.

• The Working Group also heard an update on the survey regarding state adoption of Model Audit Rule (MAR) Revisions:  Thirty-six states have completed the process of amending or updating their regulation or statute for the Annual Financial Reporting Model Regulation, commonly referred  to as the Model Audit Rule.  Fourteen states are expected to complete the process by the end of 2009 with two expected to finish in early 2010.

• There are some MAR interpretation issues.  NAIC legal staff reviewed the request of the WG whether an Internal Control Attestation, issued in accordance with SSAE 15 could be used along with an addendum to satisfy the MAR requirement.  Staff reported that in their opinion the Attestation with the addendum would satisfy the MAR requirements.  Based upon this report, the WG adopted proposed interpretative language to the definition of “Group of Insurers” contained in the Implementation Guide.  The language clarifies that controls should be assessed for materiality at the legal entity but that redundant work should not be performed where the systems or controls are common to the group.  The modification, in part, states, “In determining the appropriate scope and level of testing for systems that are shared by a group of insurers, management is not required to expand the scope or perform additional testing that would be redundant for each legal entity included within the group of insurers.  To the extent that a specific internal control or system is unique to and has a material impact on the preparation of the audited statutory financial statements of a legal entity included in a group of insurers and the legal entity exceeds the premium thresholds contained in Section 16, that control or system is to be included in management's evaluation of internal controls.”

The Model does not allow the Commissioner to accept an Audited financial report prepared by an accountant who provides the insurer, contemporaneously with the audit, non-audit services as outlined within the Model.  One of the prohibited services outlined in the Model consists of bookkeeping or other services related to the accounting records or financial statements of the insurer.  The prohibition in this area should include, but is not limited to, services related to the preparation of the Annual Statement to be submitted by the insurer.  However, the drafting of the Audited financial report would not be prohibited, provided that the accountant does not assume decision-making authority in compiling the draft report.  The WG adopted this clarifying interpretation.

The WG discussed a question about partner rotation related to FAQ (frequently asked questions) No. 5.  The NAIC legal staff indicated that the MAR is quite clear that the partner rotation applies to the entire organization.  Any departure could be granted by the state under the waiver provision.

• The WG continued discussion on access to CPA work papers especially when a state is planning to begin work on an exam or in the early stages of an exam and the audit firm has not finished their work.  A recommendation was made to send a note to the Financial Examiners Handbook Technical Group to include language that States should notify CPA firms as soon as possible when an examination will be performed to facilitate timely sharing of information.

The National Treatment and Coordination Working Group:

• Discussed the proposed changes to the Form 13 Proformas for Property/Casualty, Life and Health and Title proposed to improve the analysis of the applicant’s capitalization, liquidity, and expenses.

• Discussed Accreditation standards referral from the Financial Regulation Standards and Accreditation Committee for addition to the Company Licensing Best Practices Handbook.

• Discussed exemplars and information gathered for drafting a uniform form for Affidavit of Lost Certificate of Authority.

• Discussed survey of states on usage of Form 14 for change of address

The Rating Agency Working Group held its initial meeting in March.  The goal of the group is to determine what changes, if any, are warranted in how the NAIC uses Nationally Recognized Statistical Rating Organizations (NRSRO) ratings.  Following adoption of the interim conference call minutes, the WG discussed the draft document addressing the charge to evaluate risks associated with NAIC reliance on NRSRO (aka ARO) credit ratings.  The document described inherent problems in reliance on ratings, for example:

• Due to reliance on ratings, insurance regulators may lose their independent ability to monitor an insurance company’s compliance with prudent investment practices.
• Rating agencies’ use of corporate bond default history as the basis for analyzing structured securities was based on an underlying assumption that the two classes would behave similarly in varying market scenarios.   The fundamental differences in the underlying sources of the cash flow and the structures of the securities created the two different classes of securities.
• Credit rating agencies’ rating revisions tend to lag behind market and economic developments.  ARO ratings tend to be long-term ratings, meant to be valid over an economic cycle.  As a result, ratings may not react fast enough, or be sufficiently current, to satisfy regulatory needs.
• Problems in initial assumptions and modeling for structured securities can often be discovered by monitoring the performance of the underlying assets after issuance.  Rating agencies, however, rarely engage in sufficient monitoring.
• Credit ratings do not capture all investment risks.  This was illustrated by the appearance of new risks in structured securities (such as extension risk in hybrid securities).
• The filing exempt rule deems ARO ratings to be the equivalent of NAIC Designations.  This can make it difficult to conduct a regulatory review or intervention without affecting insurers (and other capital market participants) that purchased or sold an instrument in reliance, in part, on the regulatory treatment suggested by an ARO rating.

The document contained a number of recommendations including the following:

• NAIC should evaluate whether to expand the use of SVO and increase regulator reliance on the SVO for evaluating credit and other risks of securities.
• AROs “legitimize” financial innovation in the vast majority of fixed income products eligible for purchase by insurers and, therefore, the NAIC should have an ongoing process to monitor and evaluate ARO activities.
• Eliminate or Modify the Filing Exempt Rule
  • The NAIC should develop alternative methodologies for assessing structured security risks.  Those structured security classes where an alternative method is adopted would be ineligible for filing exemption.
  • New investment products should be ineligible for filing exemption and instead be routinely subject to regulatory evaluation.  Filing exempt status can be granted or withheld on the basis of the regulatory review.
  • The filing exempt rule should be modified to adjust for securities with new additional ARO ratings and other measures (such as V Scores and Parameter Sensitivities) when deemed applicable.  Alternatively, such securities should be subject to higher RBC or some other and additional regulatory process.  The NAIC should consider the use of market information on price direction and of yield trends in addition to ARO ratings for some or all filing exempt securities.
• ARO ratings should no longer be used to set RBC for structured securities.

The document was exposed for comment with comments due by January 6, 2010.  If adopted in its present form, significant changes to the current process are envisioned.  A conference call will be scheduled to discuss comments received on the document.  A final report is expected by mid-February.

The main charge of the Restructuring Mechanisms for Troubled Companies Subgroup was to create a white paper on “Restructuring Mechanisms for Troubled Companies“.  Having completed that charge, the group then agreed to recommend to the Financial Analysis Working Group that it consider incorporating the White Paper in the Appendix of the NAIC's Troubled Insurance Company Handbook.

OTHER COMMITTEES

Even though certain committees do not fall under the “financial” category, some of their activities do play a major role in financial reporting.  The following are summaries of those activities, along with activities from some committees that might be of interest. 

The Climate Change and Global Warming Task Force reviewed a draft Climate Risk Survey notification letter for the states to send to insurers.  All insurers groups writing $500 million or more in direct written premiums will be required to complete the survey, based on 2009 data on or before May 1, 2010.  In 2011, those writing $300 million or more are required to participate. 

The International Accounting Standards Working Group received a staff update on the insurance contracts project, which is being jointly developed by the IASB and FASB.  It was reported that the project timetable has changed again.  The new date for the exposure draft is on or about April 1, 2010 with a comment period ending August 31, 2010.  A possible reason for the change in date is to give the two Boards time to resolve differences in opinion on critical issues related to the insurance contracts project.  Key decisions that the boards have tentatively made deal with acquisition costs, which would be expensed with no revenue offset and explicit margins should contain a risk margin provision.  In addition, the IASB has released IFRS 9, Financial Instruments, which prescribes the classification and measurement of financial assets completing the first phase of the project to replace IAS 39.

Industry was asked to provide their comments adding that the next quarter will be critical in the development of the accounting standard for insurance contracts.  There is also the importance of other related accounting projects such as changes to the measurement of financial instruments, Revenue Recognition and Financial Statement Presentation and their impact on insurance entities.

Due to time constraints, discussion of agenda items about the IASB Exposure Draft-Discussion of Financial Instruments: Amortized Cost and Impairment, Financial Instrument Liabilities and other issues related to the insurance contracts project were deferred.

The Casualty Actuarial and Statistical Task Force holds monthly conference calls.  Clients have been updated regarding the interim activities via a monthly update memo.  In San Francisco, the CASTF adopted the minutes of those calls.  At this meeting, the task force discussed the Profitability Working Group’s plans to consider expansion of the lines of business in the report and to examine how premium deficiency reserves are handled in the calculations.

Beginning in 2010, the NAIC will be holding three meetings instead of the current four.  The next meeting of the National Association of Insurance Commissioners is scheduled in Denver on March 26 through 29, 2010.  We will report on that meeting in the next issue of the Interpreter.  Activities occurring during Interim meetings and conference calls will be summarized and distributed via email to all Bowne clients in our monthly NAIC Update. 

If IASA members have any questions on this article or desire additional material on what we have reported, please feel free to contact Carolyn Albertson.  Carolyn’s email address is carolyn.albertson@bowne.com.  In addition, questions can be posted on the IASA Knowledge Exchange.  Both Carolyn Albertson and Alan Close are knowledge experts on the Exchange, which is an exclusive benefit for IASA members.  The Knowledge Exchange provides members the opportunity to ask questions of, and collaborate with, hundreds of industry colleagues.  The Knowledge Exchange is focused on the core competency areas of IASA, namely, financial and technology.