Search within this section
Select a section below and enter your search term, or to search all click Insurance Contracts
Favorited Content
13.4 Statutory reporting requirements
Publication date: 31 Jan 2021
us Insurance Guide
Each state requires reporting entities conducting business in its state to file annual financial statements (Annual Statement). All states begin with the blank promulgated by the NAIC; however, each state has the authority to make changes to the blank. Changes made by the states generally do not change the basic financial information and are typically supplemental information. Disclosures required by SSAPs can be made in specific notes, schedules, or exhibits to the Annual Statements.
The quarterly statements should include disclosures sufficient to make the information presented not misleading. It is presumed that the users of the quarterly statements have read or have access to the Annual Statements of the preceding year. Accordingly, disclosures that would be substantially duplicative to those included in the Annual Statements may be omitted. Disclosures in the quarterly statements generally include significant changes since year-end, with the exception of material contingencies, which are required to be disclosed even though a significant change may not have occurred since year-end. The first, second, and third quarter statements are generally due May 15, August 15, and November 15, respectively. The NAIC does not require interim financial statements to be audited or reviewed.
Interim financial statements, also known as quarterly statements, generally follow the form and content of presentation promulgated by the NAIC; however, reporting entities need to consult their domiciliary state requirements as states may have adopted minor variations to the NAIC forms.
13.4.1 Risk-based capital filings
In accordance with the Risk-Based Capital (RBC) for Insurers Model Act, a reporting entity is required to submit a report of its RBC levels as of year-end, in a form promulgated by the NAIC and as required by the RBC instructions. The RBC report, which is due March 1, should be submitted to the domiciliary insurance department and may be provided to states in which the reporting entity is authorized to do business, if requested by the respective states.
RBC is the amount of required capital that a reporting entity must maintain based on the inherent risks in the reporting entity’s operations. RBC limits the amount of risk a reporting entity can assume and is intended to be a minimum regulatory capital standard and not necessarily the full amount of capital that a reporting entity would want to hold to meet its safety and competitive objectives. RBC is not designed to be used as a stand-alone tool in determining financial solvency of an insurance company. Rather, it is one of the tools that provide regulators legal authority to take control of a reporting entity that may be in jeopardy. Risk-based capital reports are not required to be audited.
13.4.2 SAP audited financial statements
In accordance with the NAIC Model Audit Rule, a reporting entity is required to engage an independent certified public accountant to conduct an annual audit. The audited financial statements are due to the state regulators generally on or before June 1 for the immediately preceding year ended December 31.
The annual audited financial statements should include the following for the two most recent years:
- Report of independent certified public accountant
- Balance sheet reporting admitted assets, liabilities, capital, and surplus
- Statement of operations
- Statement of cash flow
- Statement of changes in capital and surplus
- Notes to financial statements
The form, language, and groupings of the audited financial statements should be substantially the same as the relevant sections of the NAIC Annual Statement.
Each state also requires reporting entities conducting business in its state to file annual financial statements (Annual Statement) (see IG 13.4). Notes to the audited financial statements should include the disclosures required by the NAIC Annual Statement Instructions and the AP&P Manual, after consideration of applicability, materiality, and significance. There may be certain disclosures that are not required for the Annual Statement, which are required in the audited financial statements. A reconciliation of differences, if any, between the audited financial statements and the Annual Statement should be disclosed.
13.4.3 Permitted or prescribed statutory accounting practices
The primary responsibility of each state insurance department is to regulate reporting entities in accordance with state laws with an emphasis on solvency for the protection of policyholders. The ultimate objective of solvency regulation is to ensure that obligations to policyholders, contract holders, and other legal obligations are met as they become due. Additionally, reporting entities must maintain a certain level of capital and surplus, as required by statute, to provide an adequate margin of safety.
Prescribed accounting practices are accounting practices incorporated directly or by reference by state laws, regulations, and general administrative rules applicable to all reporting entities domiciled in the respective state.
Some domiciliary reporting entities may request a state insurance department to provide approval to depart from certain SSAPs and state prescribed accounting practices (for example, when the reporting entity does not believe that applying the prescribed rules reflect the economics of the transaction they have entered into); this is known as a permitted practice. The process for a permitted practice begins with a reporting entity submitting a written request to its domiciliary insurance department. If the domiciliary insurance department has determined that a permitted practice is to be approved, it must first provide notice, at least five business days in advance of such approval, to all insurance departments in the states the reporting entity is licensed in. The notice must disclose the following information:
- The nature and description of the permitted accounting practice request
- The quantitative impact of the permitted accounting practice request along with all other approved permitted accounting practices currently in effect for the reporting entity
- The impact of the requested permitted accounting practice on a legal entity basis and on all parent and affiliated US insurance companies, if applicable
- The potential impact to each financial statement line item affected by the request. The potential impact may be determined by comparing the financial statements prepared in accordance with SSAPs and the financial statements incorporating the requested permitted accounting practice.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Link copied
