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© 2015 National Association of Insurance Commissioners 1

Date: 2/11/15 Conference Call

LIFE RISK-BASED CAPITAL (E) WORKING GROUP

Thursday, February 12, 2015 11:00 a.m. – 12:00 p.m. Central

ROLL CALL

Mark Birdsall, Chair Kansas Kerry Krantz, Vice Chair Florida Steve Ostlund Alabama Perry Kupferman California Philip Barlow District of Columbia Fred Andersen Minnesota William Leung Missouri Felix Schirripa New Jersey William Carmello New York Frank Stone Oklahoma Mike Boerner Texas

AGENDA

1. Discuss Comment Letters Received on XXX/AXXX Reinsurance Framework Exposures—

Mark Birdsall (KS) • New York Life • Northwestern Mutual • American Academy of Actuaries • American Council of Life Insurers

Attachments 1 and 2 Attachments 3 and 4 Attachment 5 Attachment 6

2. Discuss XXX/AXXX Reinsurance Framework Proposals—Mark Birdsall (KS) • Treatment of Actuarial Opinion • Charges for Assets Backing Security

- Schedule to Address Assets Backing Security • RBC Shortfall (Cushion)

- Adjustment of Total Adjusted Capital for Primary Security Shortfall - Adjustment of Authorized Control Level for Primary Security Shortfall

• American Council of Life Insurers’ Document on RBC Cushion

Attachment 7 Attachment 8 Attachment 9 Attachment 10 Attachment 11

3. Any Other Matters Brought Before the Working Group

4. Adjournment W:\QA\RBC\LRBC\2015\2_12_2015 Call\LRBC 2-12-15 Agenda.doc

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BY E-MAIL January 30, 2015 Mr. Mark Birdsall Chief Actuary Kansas Insurance Department 420 SW 9th Street Topeka, Kansas 66612-1678 Attention: Dave Fleming ([email protected]) Re: Exposure Drafts Related to the XXX/AXXX Reinsurance Framework Dear Mr. Birdsall, New York Life offers the following comments on the drafts related to the XXX/AXXX reinsurance framework, exposed in December 2014. As we have stated consistently, in our view it is critical that Actuarial Guideline 48 (which contains the new standards governing XXX/AXXX captive transactions) be applied nationally on a consistent and uniform basis. Because the guideline is not a law, regulation, or accounting principle, we recognize that states may have the ability to waive compliance of an important solvency standard on an ad hoc basis. If waivers are granted, there will be no effective means of enforcing the framework until changes to credit for reinsurance laws are enacted in the states, potentially years from now. For this reason, we strongly support the proposed changes set forth in Exposure 2014-35b-L, which would increase the required risk-based capital by the amount of any shortfall in “Primary Security” under Actuarial Guideline 48. This approach effectively increases an insurer’s required capital by the amount of any shortfall in “Primary Security” and therefore reflects a “total asset” style approach to the primary security requirement. The insurer must hold the full “Required Level of Primary Security” – if it is not held directly in the form of “Primary Security”, the difference is a capital shortfall and therefore should be added to the amount of required capital via the risk-based capital instructions. The change proposed in Exposure 2014-35b-L implements this adjustment. We recognize that this proposal would cause the risk-based capital impact of non-compliance to be greater than the impact that is expected once changes to the credit for reinsurance laws take effect. We strongly believe that this enhanced impact is appropriate during the interim period before enactment of the credit for reinsurance changes. Once the credit for reinsurance law amendments are effective, credit for reinsurance, and therefore both statutory surplus and total adjusted capital, will be reduced to reflect any shortfall in “Primary Security”. The proposed changes set forth in Exposure 2014-35a-L replicate this impact on total adjusted capital, but they do not replicate the impact on statutory surplus. Because the reductions to reinsurance reserve credit and statutory surplus will come into effect only after the credit for reinsurance laws are amended, we believe that

Attachment 1

mailto:[email protected]�

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the increase to required risk-based capital proposed in Exposure 2014-35b-L is appropriate and necessary as an interim measure to ensure uniform compliance with Actuarial Guideline 48. It should be noted that an insurer could avoid this risk-based capital charge by simply holding the required level of “Primary Security” under Actuarial Guideline 48, which would effectively replicate the reduction to reinsurance reserve credit that would occur if there is non-compliance following enactment of the credit for reinsurance changes. If Exposure 2014-35b-L is adopted, we would suggest that the qualified actuarial opinion requirement in Actuarial Guideline 48 be revisited and potentially eliminated. As we have noted in the past, we believe that an increase in the required risk-based capital is preferable to mandating a qualified actuarial opinion in the event of a shortfall in “Primary Security”. The actuarial opinion is designed to be an independent actuarial opinion assessing overall reserve adequacy, and is not intended as a compliance mechanism for a particular regulatory requirement. Finally, we would recommend that each of the four Exposures be clarified to specifically state that the proposed changes would apply to an insurer regardless of whether Actuarial Guideline 48 itself is applicable to the insurer. This would make clear that states are not empowered to waive the impact of non-compliance on the risk-based capital calculations.

* * * We are grateful for your time and attention to our comments. If you would like to discuss this letter with us, please let us know.

Joel M. Steinberg Senior Vice President Chief Actuary & Chief Risk Officer New York Life Insurance Company

Attachment 1

BY E-MAIL

February 6, 2015

Mr. Mark Birdsall

Chief Actuary

Kansas Insurance Department

420 SW 9th Street

Topeka, Kansas 66612-1678

Attention: Dave Fleming ([email protected])

Re: Exposure Draft on RBC Cushion

Dear Mr. Birdsall,

New York life offers the following comments on the exposed “Rules for RBC Cushion for Captive

Transaction” (the “Exposure”) to the Life Risk-Based Capital (E) Working Group (the “Working

Group”).

One of the goals underlying the new regulatory framework for XXX and AXXX reserve financing

transactions is to ensure that captive structures complying with the new framework are appropriately

capitalized. In our view, when assessing the appropriateness of capitalization, it is important to consider

capital held at both the ceding insurer and the captive on a consolidated basis. The PBR Implementation

Task Force charged the Capital Adequacy Task Force to “develop an appropriate ‘RBC cushion’ for an

insurer ceding XXX/AXXX policies when the assuming reinsurer does not file an RBC report using the

NAIC RBC formula and instructions.” Any proposal developed pursuant to this charge should be

considered with this goal in mind.

To this end, we believe that an appropriate RBC cushion should result in a view of RBC for the ceding

insurer that reflects its true level of capitalization and prevents manipulation through the use of captives,

regardless of whether a “capital shortfall," as defined in the Exposure, exists. The approach set forth in

the Exposure examines whether the captive’s capital exceeds its company action level risk-based capital

(“CAL RBC”). If the captive is funded to this level, the Exposure requires no RBC cushion and the RBC

reported by the ceding company is assumed to be appropriate. Effectively, this pre-supposes that the

objective of the RBC cushion is to ensure the captive is funded at or above the CAL RBC. As suggested

above, we believe this approach is too narrow. In addition, if an RBC cushion is required, the Exposure

proposes an adjustment only to the ceding insurer’s total adjusted capital (“TAC”) and not its required

RBC. Again, we feel this approach is too narrow and would not result in an appropriate view of the

consolidated capital position of the ceding insurer and captive.

Furthermore, we believe the approach set forth in the Exposure could incentivize companies to continue

to use XXX/AXXX captives to “manage” capital ratios even after principles-based reserving becomes

effective. The new XXX/AXXX captives framework is designed to avoid the continued use of captive

structures following the implementation of principles-based reserving. The RBC cushion should support

this objective. Since no RBC cushion would be required under the Exposure as long as the captive’s TAC

exceeds the CAL RBC level, an insurer could use a captive structure to artificially increase its RBC ratio.

This possibility is particularly troubling when the captive does not file an RBC report using the NAIC

RBC formula and instructions. In this case, the capital position of the captive is not readily transparent to

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mailto:[email protected]

regulators or other interested parties. As a consequence, it is difficult, if not impossible, to assess whether

the ceding insurer’s capital position has been affected by the captive transaction.

For these reasons, we believe the Working Group should seriously consider alternative methods to

construct an RBC cushion that appropriately reflects the capitalization of the ceding insurer and captive

on a consolidated basis.

* * *

We are grateful for your time and attention to our comments. If you would like to discuss this letter with

us, please let us know.

Sincerely,

Joel M. Steinberg

Senior Vice President

Chief Actuary & Chief Risk Officer

New York Life Insurance Company

Attachment 2

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Attachment 3

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Attachment 3

2

February 6, 2015

Mr. Mark Birdsall

Chief Actuary, Kansas Insurance Department

Chair, NAIC Life Risk-Based Capital (E) Working Group

Via email: [email protected]

Re: Life Risk-Based Capital (E) Working Group Exposure Document on RBC Cushion

Dear Mr. Birdsall:

The Northwestern Mutual Life Insurance Company appreciates this opportunity to

comment on the exposure draft for an RBC cushion for the NAIC’s XXX/AXXX Reinsurance

Framework.

Last August, when the NAIC adopted the XXX/AXXX Reinsurance Framework, it was

acting on a set of recommendations from Rector & Associates which included the following:

“that the RBC instructions be amended to ensure that at least one party to the reserve financing

transaction holds an appropriate RBC ‘cushion’. This recommendation was in turn reflected in a

2015 charge to the NAIC’s Capital Adequacy Task Force to “Develop an appropriate ‘RBC

cushion’ for an insurer ceding XXX/AXXX policies when the assuming reinsurer does not file

an RBC report using the NAIC RBC formula and instructions.”

Before the NAIC can design the RBC cushion it must first define the objective of the

cushion.

As supporters of the state-based system of insurance regulation, we believe the objective

must be to ensure a uniform result that does not incentivize additional captives reserve financing

transactions. While we understand that certain states have established procedures to evaluate the

impact of captives transactions on the ceding company, these are no substitute for a uniform

system of adjustments to RBC designed to make it possible for regulators and market

participants to view the adequacy of capitalization of companies on a consistent basis, whether

they use captives or not.

In cases where the captive files an RBC report with the NAIC, we recognize that the

disclosure provides an opportunity for regulators and market participants to evaluate the RBC

impact of the captive on the ceding company and the relative capitalization of the ceding

company. When the captive does not file an RBC report, however, we feel adjustments to the

ceding company’s RBC are appropriate.

One possible solution might be to calculate the ceding company’s RBC ratio on a

consolidated basis with the captive(s). The RBC cushion would be that amount that when

subtracted from Total Adjusted Capital of the ceding company results in the consolidated RBC

David R. Remstad, FSA Senior Vice President & Chief Actuary 720 East Wisconsin Avenue 720 East Wisconsin Avenue Milwaukee, WI 53202-4797 414 665 2568 office [email protected]

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ratio. Without such an adjustment, companies will continue to have an incentive to enter into

captives transactions even for business subject to PBR, to the extent the RBC ratio can be

leveraged up in the ceding insurer by having a lower RBC ratio in the captive.

We appreciate the opportunity to offer these comments and look forward to continuing to

work with the NAIC in its efforts to implement the XXX/AXXX Reinsurance Framework in

order to preserve and strengthen the state-based system of insurance regulation.

Sincerely,

David R. Remstad

Senior Vice President & Chief Actuary

2

1850 M Street NW Suite 300 Washington, DC 20036 Telephone 202 223 8196 Facsimile 202 872 1948 www.actuary.org

January 30, 2015

Mark Birdsall Chair, NAIC Life Risk-Based Capital (E) Working Group National Association of Insurance Commissioners

Dear Mark:

The American Academy of Actuaries1 Life Capital Adequacy Committee (LCAC) appreciates the opportunity to comment on the National Association of Insurance Commissioners Life Risk Based Capital (E) Working Group (LRBCWG) exposures released for comment through January 30 (i.e., 2014 33-L Qualified, 2014 34-L Other Securities, 2014 35a-L Shortfall (Cushion), 2014 35b-L Shortfall (Cushion)). For purposes of our commentary we organized these exposures into one of two categories:

1. Defining RBC consequence for AG48 Asset Deficiency: 2014 33-L Qualified, 2014 35a-L Shortfall (Cushion), 2014 35b-L Shortfall (Cushion)

2. Establishing RBC factors, where none exist today: 2014 34-L Other Securities AG48 Asset Deficiency While LCAC opposes the prescription of a qualified Actuarial Opinion via Actuarial Guideline XLVIII ( AG48), we support the exposure 2014 33-L Qualified that would eliminate the RBC impact of a qualified opinion due solely to the requirements of AG48 and thus avoid additional capital requirements on products outside the scope of AG48. Two alternatives were exposed to create an RBC consequence when an unresolved AG48 primary asset requirement deficiency exists. The first alternative would deduct the deficiency from Total Adjusted Capital (TAC). The second would add this deficiency to Authorized Control Level (ACL). Assuming that 2014 33-L Qualified is adopted, we prefer that the deficiency be recognized by adjusting TAC and thus support adoption of 2014 35a-L Shortfall (Cushion). Reducing TAC by the amount of the primary asset deficiency recognizes the AG48 shortfall dollar for dollar, and reduces the RBC ratio. Adjusting ACL would be more punitive on the RBC ratio as this adjustment would have a leveraging effect since typically most companies hold capital that is several multiples of ACL. Further, we believe that any adjustments to RBC should be risk-based and aligned with the objective of identifying weakly capitalized companies.

1 The American Academy of Actuaries is an 18,000+ member professional association whose mission is to serve the public and the U.S. actuarial

profession. The Academy assists public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.

Attachment 5

http://www.actuary.org/

http://www.naic.org/documents/committees_e_capad_lrbc_exposure_33_l_qualified.pdf

http://www.naic.org/documents/committees_e_capad_lrbc_exposure_33_l_other_securities.pdf

http://www.naic.org/documents/committees_e_capad_lrbc_exposure_35_a_shortfall.pdf

http://www.naic.org/documents/committees_e_capad_lrbc_exposure_35_b_shortfall.pdf











2

Establishing New RBC Factors Generally speaking, we believe that C1 charges for assets/securities involved with policies/transactions subject to AG48 should be the same as for those with similar risks in the RBC formula. In other words, we do not see any additional investment risks for those assets/securities associated with AG48 transactions. Therefore, we agree that existing RBC factors should be used where available and that new charges should only be created to address gaps in current factors. However, we have several concerns with the 2014 34-L Other Securities exposure:

1. Introductory language for Section 1 should more clearly state (a) Scope is assets/securities involved with policies/transactions subject to AG48 and (b) Intent is to establish factors for assets that are not addressed elsewhere in the RBC formula.

2. Section 1 is for assuming entities that report or file RBC. Therefore, we do not see the need to include anything other than "other assets" in this section. Specifically, Section 1 need only include “Assets Backing Other Security: Admissible Per SSAP No. 4” and “Assets Backing Other Security: Not Admissible Per SSAP No. 4.” We suggest that the LRBCWG remove assets addressed elsewhere in the RBC formula from this section or help us better understand why this is necessary.

3. Language in footnote of Section 1 could be clarified. We suggest language such as “C1 charge

is based on the Bond factor for the financing provider’s financial strength rating if available; if not available, base the C1 charge on the issuer’s credit rating. If neither financial strength rating nor issuer credit rating is available for the financing provider, then the rating should be provided by the Commissioner.” We also note that some instruments (e.g., LOCs) are rated by NRSROs. We suggest the use of the instrument’s rating rather than the rating of the financing provider. The rating would take into consideration the specific characteristics of the instrument and would be a better predictor of the instrument’s credit loss, as compared to the rating of the financing provider. If the instrument is not rated, then the C1 charge could be based on the hierarchy described above: financial strength rating, commissioner assigned.

4. We do not see the need for a C1 factor on policy loans because policy loans are essentially secured. Repayment of policy loans is assured via the contract between the policyholder and the insurer.

5. We suggest that line [59] be amended to read Affiliate or Parental Guarantees.

6. Section 2 applies in the situation where the assuming entity does not report or file RBC. We think that a full listing of primary and other assets would be required for the ceding company to complete sections 2. Additional information may be required for other components of RBC to be developed (e.g., C2, C3, C4). However further comment is not possible until Section 2 is exposed or the LRBCWG’s intent is better understood.

7. For both sections it is not clear how the exposures will be aggregated with or incorporated

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into the RBC in aggregate. We believe it makes sense for the Section 1 results to be part of C1 and flow through the covariance calculation.

The LCAC is available to answer your questions and continue a dialogue with the LRBCWG regarding this proposal. If you have any questions or would like to discuss this letter in more detail, please contact Brian Widuch, the Academy’s life policy analyst ([email protected]; 202-223-8196).

Sincerely,

Jeffrey Johnson, MAAA, FSA Chairperson Life Capital Adequacy Committee American Academy of Actuaries

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Paul Graham Senior Vice President, Insurance Regulation & Chief Actuary January 30, 2015

Mark Birdsall Chair, NAIC Life Risk-Based Capital (E) Working Group

RE: Exposure Drafts Related to the XXX/AXXX Reinsurance Framework Dear Mark:

ACLI1 appreciates the opportunity to provide comments on the five exposure drafts related to the XXX/AXXX Reinsurance Framework. Our comments are logically separated into two themes: (1) Exposure Drafts concerning Qualified Opinions, and (2) Exposure Drafts designed to ensure appropriate RBC Cushion is maintained for the risks being reinsured. Exposure Drafts Concerning Qualified Opinions Exposure 2014 33-L Qualified This Exposure Draft would modify the LR027 RBC interrogatory. We support this exposure draft as it appropriately removes additional C-3 charges to a ceding company that submits a qualified opinion solely based on the Actuarial Guideline XLVIII (AG 48) requirements. Such qualified opinions have no relationship to asset/liability mismatch. Failure to meet the requirements for Primary Security should be properly reflected elsewhere in the RBC calculation, as proposed in Exposure 35a-L. Exposure 35a-L Shortfall (Cushion) and Exposure 35b-L Shortfall (Cushion) These Exposure Drafts are designed to handle situations in which there is a qualified opinion as a result of failing to meet the Required Level of Primary Security as defined in AG 48. We note that there is a misleading reference to “Shortfall (Cushion)” in the titles of the Exposure Drafts. Whereas the concept of “RBC Cushion” contained in the adopted Regulation XXX/AXXX Reinsurance Framework clearly refers to shortfalls in the required capital for the reinsurance transaction, these Exposure Drafts are clearly designed to handle a shortfall in the Required Level of Primary Security. We also note that it is not clear that these Exposure Drafts should be reviewed as separate, alternative proposals. While we believe that is the intent, we feel obligated to point out that it would clearly be inappropriate to adopt both proposals, as it would double count the shortfall in the RBC ratio calculation.

1 The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association with 284 member companies operating in the United States and abroad. ACLI advocates in federal, state, and international forums for public policy that supports the industry marketplace and the 75 million American families that rely on life insurers’ products for financial and retirement security. ACLI members offer life insurance, annuities, retirement plans, long-term care and disability income insurance, and reinsurance, representing more than 90 percent of industry assets and premiums. Learn more at www.acli.com.

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From a technical perspective, any shortfall in Primary Security is appropriately captured as a reduction in Total Adjusted Capital. This is consistent with the balance sheet impact of reducing reserve credit for the shortfall, as allowed in AG 48 as a remedy. While we are all aware of the many non-regulatory uses of RBC, regulators’ use of RBC is to identify weakly capitalized companies. It is important for the RBC instructions to properly handle the different risks of the company so as not to distort the fundamental assessment of whether companies are well capitalized. ACLI believes that Exposure Draft 2014 35b-L improperly handles a shortfall in Primary Security. Increasing Authorized Control Level by the amount of a Primary Security shortfall would typically have a multiplier effect, setting Company Action Level at a level that exceeds the true risk. However, in certain cases that should be of primary concern to regulators (companies have less than Company Action Level RBC after the shortfall is taken into account), the proposed adjustment to Authorized Control Level RBC would have the opposite impact, resulting in a company that appears more robustly capitalized than it actually is. For example, consider the following scenario: RBC Ratio Pre-shortfall RBC Ratio Post-shortfall If Adjust If Adjust RBC Shortfall TAC ACL TAC 760m 555m 205m 760m ACL 300m 555m 300m 855m RBC Ratio 253% 68% 89% In this instance, the company should be in Mandatory Control Level, but would be shown above that level if the denominator of the ratio is adjusted rather than the numerator. We do not believe the ability of regulators to assess whether companies are adequately capitalized should be compromised in this manner. Therefore, we support adoption of 2014 35a-L, and do not believe 2014 35b-L should be adopted. We would be remiss if we did not point out a couple of mistakes in the Exposure Drafts. First, the instructions for 2014 35b-L (which adds the Primary Security Shortfall to Company Action Level RBC) do not carry out the intent of the RBC Proposal Form, which states that the shortfall is intended to be added to Authorized Control Level RBC. Further, we do not believe that it is clear in either Exposure Draft that RBC adjustment is only required if there is a qualified opinion due to a Primary Security Shortfall. Exposure Drafts Designed to Ensure Appropriate RBC Cushion We note that Exposure Draft 2014 34-L (Charges for Other Security) and the Draft Rules for RBC Cushion are interdependent. The only reason to develop asset default charges for “Assets Backing Other Security” is to allow for RBC calculations to be computed for entities having such assets (generally, captive reinsurers). In many states, captive reinsurers are not currently required to file RBC reports. RBC Instructions based on the Draft Rules for RBC Cushion will be needed to create a requirement that an RBC calculation be performed and to provide consistent guidance for how it

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should be performed. These rules provide a framework under which it can be determined whether or not there is a “RBC shortfall” for those captive reinsurers in scope, and, if so, to calculate the amount of the shortfall. To provide a “RBC cushion”, this shortfall is then to be subtracted from the Total Adjusted Capital of the ceding company (treating such surplus as dedicated to the block of business ceded to the captive reinsurer). The “RBC Shortfall” only needs to be calculated for entities reinsuring Covered Policies, as defined in AG 48, excluding entities assuming only risks exempted per Section 3 of AG 48. We comment on these two exposures with the preceding in mind. Draft Rules for RBC Cushion ACLI supports the Rules for RBC Cushion as drafted. The rules shown in this Exposure Draft are needed to determine exactly how the C-1 charges shown in Exposure 2014 34-L will be used. These rules are designed to get equivalent outcomes for the calculation of RBC Shortfall regardless of the particular structure of the captive transactions. The rules are designed to be impartial as to whether or not the captive has an existing requirement to file RBC reports or use statutory accounting. The rules are also impartial as to whether the captive is owned by the ceding insurer or some other entity in the affiliated group, or whether a captive assumes business from more than one ceding company. The draft rules will need to be turned into RBC instructions. Since the RBC Shortfall will directly impact the Total Adjusted Capital (TAC), we suggest that the proper place for these rules is in the calculation for TAC on page LR033. A new line item, called “RBC Shortfall for certain XXX/AXXX Reinsurance Transactions” should be added to the calculation, and instructions for the calculation of “RBC Shortfall“ based on these rules should be added. Exposure 2014 34-L Other Securities The purpose of developing these new C-1 charges is because captive reinsurers, many times, have permitted practices that allow certain items such as letters of credit and parental guarantees to be considered admitted assets on the balance sheets of the captive, and these values are necessary in order to calculate a risk-based capital requirement for the captive. ACLI supports the factors and factor calculation methodology as exposed. For issues that do not already have a rating, we believe that that the C-1 charges should be based solely on the ratings of the issuer of the “asset backing other security”, and the asset be treated as if it was a bond issued by the financing provider. Furthermore, we believe that if there is a material condition under which the financing provider is not obligated to make payment (e.g., the financing provider doesn’t have to pay if there is a downgrade of the parent company), the C-1 charge should be calculated using a one notch downgrade. Please see our letter of December 15, 2014 to the Life Risk-Based Capital Working Group for the rationale for supporting these factors and calculation methodology. Having stated our support for the factors and methodology, we do not believe that the instructions included on LR017 accomplish what we understand to be intent (as we described above). Page LR017 is a supplemental schedule that only should apply for entities reinsuring Covered Policies, as defined in AG 48, excluding entities assuming only risks exempted per Section 3 of AG 48. Our understanding is that this schedule is to supplement the entire RBC calculation. C-0, C-2, C-3, and C-4 calculations are not changed for these entities. We think the best way to implement the calculations shown on LR017 would be to have the instructions have a “switch” at the top that

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indicates that this page augments normal C-1 calculations for entities reinsuring Covered Policies, as defined in AG 48, excluding entities assuming only risks exempted per Section 3 of AG 48. Since the RBC Shortfall needs to be calculated regardless of whether or not the assuming reinsurer files a RBC report, it does not appear there is a need for the “yes/no” question at the top of LR017. The charges from LR017 will be needed in either instance. If the assuming reinsurer does not file a RBC report, a pro forma calculation is done using the exact same factors. The instructions will need to indicate that. Finally, we note that there are bonds that are not admitted under SSAP 4 that already have a SVO rating assigned, so lines (30) through (36) need to be repeated in the section labeled “Assets Backing Other Security Not Admissible Per SSAP No. 4” We appreciate the opportunity to provide our comments and look forward to discussing these exposures as the Working Group works to finalize them. Sincerely,

Paul S. Graham, III, FSA, MAAA cc: Dave Fleming, NAIC

Attachment 6

2013 National Association of Insurance Commissioners

Capital Adequacy (E) Task Force RBC Proposal Form

[ ] Capital Adequacy (E) Task Force [ ] Health RBC (E) Working Group [ X ] Life RBC (E) Working Group

[ ] Catastrophe Risk (E) Subgroup [ ] Investment RBC (E) Working Group [ ] SMI RBC (E) Subgroup

[ ] C3 Phase II/ AG43 (E/A) Subgroup [ ] P/C RBC (E) Working Group [ ] Stress Testing (E) Subgroup

DATE: 12/1/2014

CONTACT PERSON: Dave Fleming

TELEPHONE: 816-783-8121

EMAIL ADDRESS: [email protected]

ON BEHALF OF: Life Risk-Based Capital (E) Working Group

NAME: Mark Birdsall

TITLE: Chair

AFFILIATION: Kansas Insurance Department

ADDRESS:

FOR NAIC USE ONLY

Agenda Item # 2014-33-L

Year 2015

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO

[ ] REFERRED TO OTHER NAIC GROUP

[ ] EXPOSED

[ ] OTHER (SPECIFY)

IDENTIFICATION OF SOURCE AND FORM(S)/INSTRUCTIONS TO BE CHANGED [ ] Health RBC Blanks [ ] Property/Casualty RBC Blanks [ X ] Life RBC Instructions

[ X ] Fraternal RBC Blanks [ ] Health RBC Instructions [ ] Property/Casualty RBC Instructions

[ X ] Life RBC Blanks [ X ] Fraternal RBC Instructions [ ] OTHER

DESCRIPTION OF CHANGE(S) The proposed change would add wording to Line (1.1) on LR027 Interest Rate Risk and Market Risk indicating that the answer to the interrogatory is unaffected by consideration of Actuarial Guideline XLVIII.

REASON OR JUSTIFICATION FOR CHANGE ** The proposed change would avoid impacting all lines of business for a qualification of the Actuarial Opinion based solely on lines of business covered by Actuarial Guideline XLVIII.

Additional Staff Comments: ___________________________________________________________________________________________________ ** This section must be completed on all forms. Revised 11-2013

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chm

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ER

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D M

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tors

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16)

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17)

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27)

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29)

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30)

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31)

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(33

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17),

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kC

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atic

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ctor

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lus

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ifie

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sum

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less

mod

ifie

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Exc

ludi

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ny n

on-p

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yhol

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rese

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(e.

g., r

eser

ves

that

are

not

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ated

to s

peci

fic

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cies

).*

Exc

ludi

ng G

ICs

wit

hin

1 ye

ar o

f m

atur

ity.

£In

clud

es G

ICs

wit

hin

1 ye

ar o

f m

atur

ity

subt

ract

ed e

lsew

here

.

Den

otes

item

s th

at m

ust b

e m

anua

lly

ente

red

on th

e fi

ling

sof

twar

e.

Atta

chm

ent 7

9/

5/20

14

73

© 1

993-

2014

Nat

iona

l Ass

ocia

tion

of I

nsur

ance

Com

mis

sion

ers

INT

ER

ES

T R

AT

E R

ISK

AN

D M

AR

KE

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ISK

L

R02

7 Ba

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tors

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inte

rest

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e le

vels

. The

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tors

cho

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here

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here

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t li

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tes.

The

refo

re,

risk

cat

egor

ies

vary

by

wit

hdra

wal

pro

visi

on.

Fac

tors

for

eac

h ri

sk c

ateg

ory

wer

e de

velo

ped

base

d on

the

ass

umpt

ion

of w

ell

mat

ched

ass

et a

nd l

iabi

lity

dur

atio

ns.

A l

oadi

ng o

f 50

per

cent

was

the

n ad

ded

on t

o re

pres

ent

the

extr

a ri

sk o

f le

ss w

ell-

mat

ched

por

tfol

ios.

Com

pani

es m

ust

subm

it an

unq

ualif

ied

actu

aria

l op

inio

n ba

sed

on a

sset

ade

quac

y te

stin

g to

be

elig

ible

for

a c

redi

t of

one

-thi

rd o

f th

e R

BC

oth

erw

ise

need

ed.

Th

e in

terr

ogat

ory

on L

ine

(1.1

) sh

ould

be

answ

ered

yes

if

the

opin

ion

is

un

qu

alif

ied

. It

sh

ould

als

o b

e an

swer

ed y

es i

f th

e op

inio

n i

s q

ual

ifie

d b

ut

the

only

rea

son

for

qu

alif

icat

ion

of

the

opin

ion

is

bec

ause

of

the

dir

ecti

on p

rovi

ded

in

Act

uar

ial G

uid

elin

e X

LV

III.

C

onsi

dera

tion

is

need

ed f

or p

rodu

cts

wit

h cr

edit

ed r

ates

tie

d to

an

inde

x, a

s th

e ri

sk o

f sy

nchr

oniz

atio

n of

ass

et a

nd li

abil

ity c

ash

flow

s is

tied

not

onl

y to

cha

nges

in in

tere

st r

ates

but

al

so t

o ch

ange

s in

the

und

erly

ing

inde

x. I

n pa

rtic

ular

, eq

uity

-ind

exed

pro

duct

s ha

ve r

ecen

tly

grow

n in

pop

ular

ity

wit

h m

any

new

pro

duct

var

iatio

ns e

volv

ing.

The

sam

e C

-3 f

acto

rs

are

to b

e ap

plie

d fo

r eq

uity

-ind

exed

pro

duct

s as

for

thei

r no

n-in

dexe

d co

unte

rpar

ts; i

.e.,

base

d on

gua

rant

eed

valu

es ig

nori

ng th

ose

rela

ted

to th

e in

dex.

In

add

itio

n, s

ome

com

pani

es m

ay c

hoos

e to

or

be r

equi

red

to c

alcu

late

par

t of

the

RB

C o

n C

erta

in A

nnui

ties

and

Sin

gle

Pre

miu

m L

ife

Insu

ranc

e un

der

a m

etho

d us

ing

cash

flo

w

test

ing

tech

niqu

es. R

efer

to L

R04

6 E

xem

ptio

n T

est:

Cas

h F

low

Tes

ting

for

C-3

RB

C f

or d

eter

min

atio

n of

exe

mpt

ion

from

this

cas

h fl

ow te

stin

g re

quir

emen

t.

Res

erve

s on

Cer

tain

Ann

uiti

es a

nd S

ingl

e P

rem

ium

Lif

e In

sura

nce

that

wer

e C

ash

Flo

w T

este

d fo

r A

sset

Ade

quac

y –

Fac

tor-

Bas

ed R

BC

S

ee A

ppen

dix

1 of

the

inst

ruct

ions

for

mor

e de

tails

.

The

ris

k ca

tego

ries

are

: (a

) L

ow-R

isk

Cat

egor

y T

he b

asic

ris

k-ba

sed

capi

tal

deve

lope

d fo

r an

nuit

ies

and

life

ins

uran

ce i

n th

e lo

w-r

isk

cate

gory

was

bas

ed o

n an

ass

umed

ass

et/li

abil

ity

dura

tion

mis

mat

ch o

f 0.

125

(i.e

., a

wel

l m

atch

ed p

ortf

olio

). T

his

dura

tion

al g

ap w

as c

ombi

ned

wit

h a

poss

ible

4 p

erce

nt o

ne-y

ear

swin

g in

int

eres

t ra

tes

(the

max

imum

his

tori

cal

inte

rest

rat

e sw

ing

95 p

erce

nt

of th

e ti

me)

to p

rodu

ce a

pre

-tax

fac

tor

of 0

.007

7. I

n ad

diti

on to

the

50 p

erce

nt lo

adin

g di

scus

sed

abov

e, th

e ri

sk-b

ased

cap

ital

pre

-tax

fac

tor

is 0

.011

5.

(b

) M

ediu

m a

nd H

igh-

Ris

k C

ateg

ory

The

fac

tors

for

the

med

ium

and

hig

h-ri

sk c

ateg

orie

s w

ere

dete

rmin

ed b

y m

easu

ring

the

val

ue o

f th

e ad

ditio

nal r

isk

from

the

mor

e di

scre

tiona

ry w

ithdr

awal

pro

visi

ons

base

d on

ass

umpt

ions

of

polic

yhol

der

beha

vior

and

1,0

00 r

ando

m i

nter

est

rate

sce

nari

os. S

uppl

emen

tary

con

trac

ts n

ot i

nvol

ving

lif

e co

ntin

genc

ies

and

divi

dend

acc

umul

atio

ns a

re

incl

uded

in th

e m

ediu

m-r

isk

cate

gory

due

to th

e hi

stor

ical

tend

ency

of

thes

e po

licy

hold

ers

to b

e re

lati

vely

inse

nsit

ive

to in

tere

st r

ate

chan

ges.

Add

ition

al C

ompo

nent

for

Cal

labl

e/P

re-P

ayab

le A

sset

s Id

entif

y th

e am

ount

of

calla

ble/

pre-

paya

ble

asse

ts (

incl

udin

g IO

s an

d si

mila

r in

vest

men

ts)

supp

ortin

g re

serv

es c

lass

ifie

d in

thi

s se

ctio

n. T

he C

-3 r

equi

rem

ent

afte

r ta

xes

is 5

0 pe

rcen

t of

the

exc

ess,

if

any,

of

book

/adj

uste

d ca

rryi

ng v

alue

abo

ve c

urre

nt c

all

pric

e. T

he c

alcu

latio

n is

don

e on

an

asse

t-by

-ass

et b

asis

. N

OT

E:

If a

com

pany

is

requ

ired

to

calc

ulat

e pa

rt o

f th

e R

BC

bas

ed o

n ca

sh f

low

test

ing

for

C-3

RB

C, t

he f

acto

r ba

sed

requ

irem

ents

for

cal

labl

e/pr

e-pa

yabl

e as

sets

use

d in

that

test

ing

is z

ero.

Atta

chm

ent 7

Th

is p

age

inte

nti

onal

ly le

ft b

lan

k.






DATE: 12/16/2014


TELEPHONE: 816-783-8121



NAME: Mark Birdsall

TITLE: Chair


ADDRESS:

FOR NAIC USE ONLY

Agenda Item # 2014-34-L

Year 2015

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO


[ ] EXPOSED

[ ] OTHER (SPECIFY)




DESCRIPTION OF CHANGE(S) The proposed change would add a new schedule to address Other Securities per Actuarial Guideline XLVIII.

REASON OR JUSTIFICATION FOR CHANGE ** Where assets backing security per Actuarial Guideline XLVIII are already addressed in the RBC formula, the existing treatment and factors will apply. This new schedule will show the assets backing the security not addressed elsewhere in the formula by category and will have varying factors applied.


Attachment 8

XX

X/A

XX

X R

EIN

SUR

AN

CE

Is th

e as

sum

ing

entit

y re

port

ing

the

Ris

k-B

ased

Cap

ital r

equi

rem

ents

ass

ocia

ted

with

the

cess

ion?

Yes

or

No.

If "

yes"

, com

plet

e Se

ctio

n 1

If "

no",

com

plet

e Se

ctio

n 2

SEC

TIO

N 1

C-1

Cha

rges

for

Ass

ets B

acki

ng P

rim

ary

and

Oth

er S

ecur

ity, a

s def

ined

by

Act

uari

al G

uide

line

XL

VII

I(T

his s

ched

ule

is to

incl

ude

only

thos

e ite

ms n

ot a

ddre

ssed

els

ewhe

re in

the

form

ula.

)(1

)(2

)(3

)

Sour

ceSt

atem

ent V

alue

Fact

orR

equi

rem

ent

Ass

ets B

acki

ng P

rim

ary

Secu

rity

Cas

h

(1)

Cas

hC

ompa

ny R

ecor

dsX

0.00

40=

(2)

Cas

h E

quiv

alen

ts

Com

pany

Rec

ords

X0.

0040

=(3

)Sh

ort-

Ter

m In

vest

men

tsC

ompa

ny R

ecor

dsX

0.00

40=

(4)

Tot

al C

ash

Sum

of L

ines

(1) t

hrou

gh (3

)

Bon

ds a

nd P

refe

rred

Sto

ck

(5)

NA

IC 1

C

ompa

ny R

ecor

ds(6

)N

AIC

2

Com

pany

Rec

ords

X0.

0130

=(7

)N

AIC

3

Com

pany

Rec

ords

X0.

0460

=(8

)N

AIC

4

Com

pany

Rec

ords

X0.

1000

=(9

)N

AIC

5

Com

pany

Rec

ords

X0.

2300

=(1

0)N

AIC

6

Com

pany

Rec

ords

X0.

3000

=

(11)

Tot

al B

onds

and

Pre

ferr

ed S

tock

Sum

of L

ines

(5) t

hrou

gh (1

0)

Com

mon

Sto

ck

(12)

Mon

ey M

arke

t Mut

ual F

unds

Com

pany

Rec

ords

X0.

0040

(13)

Fede

ral H

ome

Loa

n B

ank

Com

mon

Sto

ckC

ompa

ny R

ecor

dsX

0.01

10(1

4)U

naffi

liate

d Pr

ivat

e C

omm

on S

tock

Com

pany

Rec

ords

X0.

3000

(15)

Una

ffilia

ted

Publ

ic C

omm

on S

tock

Com

pany

Rec

ords

X†

(16)

Tot

al C

omm

on S

tock

Sum

of L

ines

(12)

thro

ugh

(15)

Mor

tgag

es

(17)

Cat

egor

y C

M1

Com

pany

Rec

ords

X0.

0090

=(1

8)C

ateg

ory

CM

2C

ompa

ny R

ecor

dsX

0.01

75=

(19)

Cat

egor

y C

M3

Com

pany

Rec

ords

X0.

0300

=

(20)

Tot

al M

ortg

ages

Sum

of L

ines

(17)

thro

ugh

(19)

(21)

Polic

y L

oans

Com

pany

Rec

ords

X=

(22)

Tot

al A

sset

s Bac

king

Pri

mar

y Se

curi

tySu

m o

f Lin

es (4

) + (1

1) +

(16)

+ (2

0) +

(21)

Atta

chm

ent 8

Ass

ets B

acki

ng O

ther

Sec

urity

Ass

ets B

acki

ng O

ther

Sec

urity

Adm

issa

ble

Per

SSA

P N

o. 4

Mis

cella

neou

s Ass

ets

(23)

Cas

hC

ompa

ny R

ecor

dsX

0.00

40=

(24)

Cas

h E

quiv

alen

ts

Com

pany

Rec

ords

X0.

0040

=(2

5)Sh

ort-

Ter

m In

vest

men

tsC

ompa

ny R

ecor

dsX

0.00

40=

(26)

Prem

ium

Not

esC

ompa

ny R

ecor

dsX

0.06

80=

(27)

Rec

eiva

ble

for

Secu

ritie

sC

ompa

ny R

ecor

dsX

0.01

40=

(28)

Wri

te-in

s for

Inve

sted

Ass

ets

Com

pany

Rec

ords

X0.

0680

=

(29)

Tot

al M

isce

llane

ous A

sset

sSu

m o

f Lin

es (2

3) th

roug

h (2

8)

Bon

ds a

nd P

refe

rred

Sto

ck

(30)

NA

IC 1

C

ompa

ny R

ecor

ds(3

1)N

AIC

2

Com

pany

Rec

ords

X0.

0130

=(3

2)N

AIC

3

Com

pany

Rec

ords

X0.

0460

=(3

3)N

AIC

4

Com

pany

Rec

ords

X0.

1000

=(3

4)N

AIC

5

Com

pany

Rec

ords

X0.

2300

=(3

5)N

AIC

6

Com

pany

Rec

ords

X0.

3000

=

(36)

Tot

al B

onds

and

Pre

ferr

ed S

tock

Sum

of L

ines

(30)

thro

ugh

(35)

Com

mon

Sto

ck

(37)

Mon

ey M

arke

t Mut

ual F

unds

Com

pany

Rec

ords

X0.

0040

(38)

Fede

ral H

ome

Loa

n B

ank

Com

mon

Sto

ckC

ompa

ny R

ecor

dsX

0.01

10(3

9)U

naffi

liate

d Pr

ivat

e C

omm

on S

tock

Com

pany

Rec

ords

X0.

3000

(40)

Una

ffilia

ted

Publ

ic C

omm

on S

tock

Com

pany

Rec

ords

X†

(41)

Tot

al C

omm

on S

tock

Sum

of L

ines

(37)

thro

ugh

(40)

Mor

tgag

es

(42)

Cat

egor

y C

M1

Com

pany

Rec

ords

X0.

0090

=(4

3)C

ateg

ory

CM

2C

ompa

ny R

ecor

dsX

0.01

75=

(44)

Cat

egor

y C

M3

Com

pany

Rec

ords

X0.

0300

=(4

5)C

ateg

ory

CM

4C

ompa

ny R

ecor

dsX

0.05

00=

(46)

Cat

egor

y C

M5

Com

pany

Rec

ords

X0.

0750

=(4

7)C

ateg

ory

CM

6C

ompa

ny R

ecor

dsX

0.18

00=

(48)

Cat

egor

y C

M7

Com

pany

Rec

ords

X0.

2300

=

(49)

Tot

al M

ortg

ages

Sum

of L

ines

(42)

thro

ugh

(48)

Rea

l Est

ate

(50)

Com

pany

Occ

upie

d an

d In

vest

men

t Rea

l Est

ate

Com

pany

Rec

ords

X0.

1500

=(5

1)C

ompa

ny O

ccup

ied

and

Inve

stm

ent E

ncum

bran

ces

Com

pany

Rec

ords

X0.

1200

=(5

2)Fo

recl

osed

and

Sch

edul

e B

A R

eal E

stat

eC

ompa

ny R

ecor

dsX

0.23

00=

(53)

Fore

clos

ed a

nd S

ched

ule

BA

Enc

umbr

ance

sC

ompa

ny R

ecor

dsX

0.20

00=

(54)

Tot

al R

eal E

stat

eSu

m o

f Lin

es (5

0) th

roug

h (5

3)

(55)

All

Oth

er In

vest

men

ts A

dmis

sibl

eC

ompa

ny R

ecor

dsX

0.30

00=

(56)

Tot

al A

sset

s Bac

king

Oth

er S

ecur

ity A

dmis

sibl

eSu

m o

f Lin

es (2

9) +

(36)

+ (4

1) +

(49)

+ (5

4) +

(55)

Ass

ets B

acki

ng O

ther

Sec

urity

Not

Adm

issi

ble

Per

SSA

P N

o. 4

(57)

Eve

rgre

en, U

ncon

ditio

nal L

ette

rs o

f Cre

dit

Com

pany

Rec

ords

X#

=(5

8)A

ll O

ther

Let

ters

of C

redi

tC

ompa

ny R

ecor

dsX

#=

(59)

Affi

liate

Gua

rant

ees

Com

pany

Rec

ords

X#

=(6

0)A

ll O

ther

Ass

ets i

n W

hich

Cre

dit R

atin

g of

Fin

anci

ng P

rovi

der

is o

r C

an b

e A

ssig

ned.

Com

pany

Rec

ords

X#

=(6

1)A

ll O

ther

Ass

ets i

n W

hich

Cre

dit R

atin

g of

Fin

anci

ng P

rovi

der

Can

not b

e A

ssig

ned.

Com

pany

Rec

ords

X0.

300

=

(62)

Tot

al A

sset

s Bac

king

XX

X/A

XX

X R

eins

uran

ce S

ecur

itySu

m o

f Lin

es (5

6) +

(57)

+ (5

8) +

(59)

+ (6

0) +

(61)

# U

se C

-1 C

harg

e ba

sed

on r

atin

g of

fina

ncin

g pr

ovid

er.

Ass

et is

ass

umed

to b

e a

bond

for

the

purp

oses

of a

ssig

ning

ris

k ch

arge

. If

ther

e is

a c

ondi

tion

on th

e as

set t

hat t

he fi

nanc

ing

prov

ider

is n

ot r

equi

red

to p

ay

in th

e ev

ent o

f a p

aren

t com

pany

dow

ngra

de, C

-1 C

harg

e is

to b

e ba

sed

on a

one

-not

ch d

owng

rade

of t

he fi

nanc

ing

prov

ider

. If

the

finan

cing

pro

vide

r do

es n

ot h

ave

finan

cial

stre

ngth

rat

ing

from

rat

ing

agen

cy,

Use

C-1

Cha

rge

base

d on

rat

ing

assi

gned

by

Com

mis

sion

er.

The

Com

mis

sion

er m

ay r

eque

st h

elp

from

the

NA

IC S

VO

for

the

purp

oses

of a

ssig

ning

a r

atin

g.

Atta

chm

ent 8

9/

5/20

14

0 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

XX

X/A

XX

X R

EIN

SUR

AN

CE

SE

CU

RIT

Y

LR01

7 Ba

sis o

f Fac

tors

Th

e in

tent

of

this

sch

edul

e is

to c

aptu

re th

e ris

k as

soci

ated

with

thos

e in

vest

men

ts b

acki

ng “

Prim

ary

Secu

rity”

and

“O

ther

Sec

urity

” pe

r A

ctua

rial G

uide

line

XLV

III

that

sup

port

XX

X/A

XX

X re

insu

ranc

e ce

ssio

ns.

This

sch

edul

e is

to in

clud

e on

ly th

ose

inve

stm

ents

not

incl

uded

els

ewhe

re in

the

form

ula.

The

am

ount

s inc

lude

d sh

ould

cor

resp

ond

with

thos

e th

at

will

rep

orte

d in

the

Apr

il 1

Supp

lem

enta

l XX

X/A

XX

X R

eins

uran

ce E

xhib

it.

The

inst

ruct

ions

for

that

sup

plem

ent i

ndic

ate

that

for

ass

ets

that

wou

ld b

e ad

mitt

ed u

nder

the

NAI

C

Acco

untin

g Pr

actic

es a

nd P

roce

dure

s Man

ual i

f the

y w

ere

held

by

the

repo

rting

ent

ity a

nd w

ithou

t tak

ing

into

con

side

ratio

n an

y pr

escr

ibed

or p

erm

itted

pra

ctic

es, a

nd in

clud

ing

asse

ts

held

in tr

ust,

the

valu

es a

re to

be

dete

rmin

ed a

ccor

ding

to s

tatu

tory

acc

ount

ing

proc

edur

es th

e N

AIC

Acc

ount

ing

Prac

tices

and

Pro

cedu

res

Man

ual a

s if

such

ass

ets

wer

e he

ld in

the

repo

rting

insu

rer’

s ge

nera

l acc

ount

. If

the

cedi

ng c

ompa

ny c

anno

t det

erm

ine

the

stat

utor

y ac

coun

ting

valu

e of

cer

tain

ass

ets

unde

r th

e N

AIC

Acc

ount

ing

Prac

tices

and

Pro

cedu

res

Man

ual a

fter m

akin

g a

dilig

ent e

ffort

to d

o so

, the

ced

ing

com

pany

can

repo

rt th

at a

sset

usi

ng th

e va

lue

assi

gned

to th

e as

set f

or th

e pu

rpos

e of

det

erm

inin

g th

e am

ount

of r

eser

ve c

redi

t ta

ken;

pro

vide

d, h

owev

er, a

ny su

ch a

sset

s mus

t be

repo

rted

on a

line

sepa

rate

from

thos

e as

sets

val

ued

in a

ccor

danc

e w

ith th

e N

AIC

Acc

ount

ing

Prac

tices

and

Pro

cedu

res M

anua

l and

th

e in

sure

r sha

ll m

ake

a no

te in

dica

ting

the

basi

s for

the

valu

atio

n us

ed.

For a

ll ot

her a

sset

s, th

e va

lues

are

to b

e th

ose

that

wer

e as

sign

ed to

the

colla

tera

l for

the

purp

ose

of d

eter

min

ing

the

amou

nt o

f res

erve

cre

dit t

aken

.

Spec

ific

Instr

uctio

ns fo

r App

licat

ion

of th

e Fo

rmul

a Li

nes (

1) th

roug

h (3

) and

(23)

thro

ugh

(28)

Th

ese

lines

shou

ld in

clud

e al

l am

ount

s tha

t wou

ld b

e in

clud

ed in

the

net a

dmitt

ed a

sset

s col

umn

on th

e co

rres

pond

ing

line

on th

e A

sset

s pag

e if

they

wer

e he

ld b

y th

e re

porti

ng e

ntity

. Li

nes (

5) th

roug

h (1

0) a

nd (3

0) th

roug

h (3

5)

This

sect

ion

shou

ld in

clud

e al

l bon

ds a

nd p

refe

rred

stoc

ks w

heth

er th

ey w

ould

be

repo

rted

on S

ched

ule

D o

r Sch

edul

e B

A.

Line

s (12

) thr

ough

(15)

and

(37)

thro

ugh

(40)

Th

ese

lines

shou

ld in

clud

e al

l am

ount

s tha

t wou

ld b

e in

clud

ed in

the

corr

espo

ndin

g lin

es o

n LR

005

Una

ffilia

ted

Pref

erre

d an

d C

omm

on S

tock

if th

ey w

ere

held

by

the

repo

rting

ent

ity.

Line

s (17

) thr

ough

(19)

and

(42)

thro

ugh

(48)

Th

e m

etho

dolo

gy f

or a

ssig

nmen

t of

mor

tgag

es to

ris

k ca

tego

ries

is th

e sa

me

as th

at u

sed

for

LR00

4 M

ortg

ages

and

LR

009

Sche

dule

BA

Mor

tgag

es.

Onl

y m

ortg

ages

cla

ssifi

ed a

s C

M1,

CM

2 or

CM

3 ar

e al

low

ed a

s prim

ary

secu

rity

per A

ctua

rial G

uide

line

XLV

III.

Line

(21)

Th

is li

ne sh

ould

incl

ude

all a

mou

nts t

hat w

ould

be

incl

uded

in th

e ne

t adm

itted

ass

ets c

olum

n on

the

corr

espo

ndin

g lin

e on

the

Ass

ets p

age

if th

ey w

ere

held

by

the

repo

rting

ent

ity.

Line

s (50

) thr

ough

(53)

Atta

chm

ent 8

9/

5/20

14

1 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

Thes

e lin

es sh

ould

incl

ude

all a

mou

nts t

hat w

ould

be

incl

uded

in th

e co

rres

pond

ing

lines

on

LR00

7 R

eal E

stat

e if

they

wer

e he

ld b

y th

e re

porti

ng e

ntity

. Li

ne (5

7)

This

lin

e sh

ould

inc

lude

all

clea

n, i

rrev

ocab

le, u

ncon

ditio

nal

and

“eve

rgre

en”

lette

rs o

f cr

edit

issu

ed o

r co

nfirm

ed b

y a

qual

ified

Uni

ted

Stat

es i

nstit

utio

n an

d m

eetin

g th

e ot

her

char

acte

ristic

s spe

cifie

d in

the

NAI

C M

odel

Cre

dit f

or R

eins

uran

ce R

egul

atio

n (M

odel

786

, Sec

tion

10.A

.(3).

Line

(62)

Th

is li

ne sh

ould

equ

al th

e am

ount

of a

sset

s bac

king

“Pr

imar

y Se

curit

y” a

nd “

Oth

er S

ecur

ity”

as id

entif

ied

per A

ctua

rial G

uide

line

XLV

III.

Atta

chm

ent 8

Th

is p

age

inte

nti

onal

ly le

ft b

lan

k.






DATE: 12/1/2014


TELEPHONE: 816-783-8121



NAME: Mark Birdsall

TITLE: Chair


ADDRESS:

FOR NAIC USE ONLY

Agenda Item # 2014-35a-L

Year 2015

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO


[ ] EXPOSED

[ ] OTHER (SPECIFY)




DESCRIPTION OF CHANGE(S) The proposed change would add a line to LR033 Calculation of Total Adjusted Capital to show any shortfall of Primary Securities per Actuarial Guideline XLVIII.

REASON OR JUSTIFICATION FOR CHANGE ** The proposed change would reduce total adjusted capital by the amount of any shortfall of Primary Securities per Actuarial Guideline XLVIII.


Attachment 9

CA

LC

UL

AT

ION

OF

TO

TA

L A

DJU

STE

D C

API

TA

L

(Inc

ludi

ng T

otal

Adj

uste

d C

apita

l Tax

Sen

sitiv

ity T

est)

(1)

(2)

Ann

ual S

tate

men

t Sou

rce

Stat

emen

t Val

ueFa

ctor

Adj

uste

d C

apita

lC

ompa

ny A

mou

nts

(1)

Cap

ital a

nd S

urpl

usPa

ge 3

Col

umn

1 Li

ne 3

8X

1.00

0=

(2)

Ass

et V

alua

tion

Res

erve

Page

3 C

olum

n 1

Line

24.

01

§X

1.00

0=

(3)

Div

iden

ds A

ppor

tione

d fo

r Pay

men

tPa

ge 3

Col

umn

1 Li

ne 6

.1, i

n pa

rtX

0.50

0=

(4)

Div

iden

ds N

ot Y

et A

ppor

tione

dPa

ge 3

Col

umn

1 Li

ne 6

.2, i

n pa

rtX

0.50

0=

(5)

Hed

ging

Fai

r Val

ue A

djus

tmen

tC

ompa

ny R

ecor

dsX

-1.0

00=

Life

Sub

sidi

ary

Com

pany

Am

ount

s†(6

)A

sset

Val

uatio

n R

eser

veSu

bsid

iarie

s' A

nnua

l Sta

tem

ent P

age

3 C

olum

n 1

Line

24.

01‡

§X

1.00

0=

(7)

Div

iden

d Li

abili

tySu

bsid

iarie

s' A

nnua

l Sta

tem

ent P

age

3 C

olum

n 1

Line

6.1

+ L

ine

6.2‡

X0.

500

=

Prop

erty

and

Cas

ualty

and

Oth

er N

on-U

.S. A

ffilia

ted

Am

ount

s(8

)N

on-T

abul

ar d

isco

unt a

nd/o

r Alie

n In

sura

nce

Subs

idia

ries:

Oth

erIn

clud

ed in

Sub

sidi

arie

s' A

nnua

l Sta

tem

ent P

age

3 C

olum

n 1

Line

1 +

3‡

X1.

000

=an

d/or

Sch

edul

e D

Par

t 6, S

ectio

n 1

Col

umn

8 Li

ne 0

5999

99 a

nd

Line

149

9999

, in

part

(9)

Tota

l Adj

uste

d C

apita

l Bef

ore

Cap

ital N

otes

Sum

of L

ines

(1) t

hrou

gh (7

) les

s Lin

e (8

)

Cre

dit f

or C

apita

l Not

es(1

0.1)

Surp

lus N

otes

Page

3 C

olum

n 1

Line

32

(10.

2)Li

mita

tion

on C

apita

l Not

es0.

5 x

[Lin

e (9

) - L

ine

(10.

1)] -

Lin

e (1

0.1)

, but

not

less

than

0(1

0.3)

Cap

ital N

otes

Bef

ore

Lim

itatio

nLR

032

Cap

ital N

otes

Bef

ore

Lim

itatio

n C

olum

n (4

) Lin

e (1

8)(1

0.4)

Cre

dit f

or C

apita

l Not

esLe

sser

of C

olum

n (1

) Lin

e (1

0.2)

or L

ine

(10.

3)

(11)

Prim

ary

Secu

rity

Sho

rtfa

ll pe

r A

ctua

rial

Gui

delin

e X

LV

III

LR

XX

X X

XX

/AX

XX

Rei

nsur

ance

Pri

mar

y Se

curi

ty S

hort

fall

by C

essi

on C

olum

n (7

) Lin

e (9

9999

99)

(12)

Tota

l Adj

uste

d C

apita

lLi

ne (9

) + L

ine

(10.

4) -

Lin

e (1

1)

Tax

Sens

itivi

ty T

est

Com

pany

Am

ount

s(1

3)D

efer

red

Tax

Ass

et (D

TA) V

alue

Page

2 C

olum

n 3

Line

18.

2 X

-1.0

00 =

(14)

Def

erre

d Ta

x Li

abili

ty (D

TL) V

alue

Page

3 C

olum

n 1

Line

15.

2 X

1.00

0 =

Subs

idia

ry A

mou

nts

(15)

Def

erre

d Ta

x A

sset

(DTA

) Val

ueC

ompa

ny R

ecor

dsX

-1.0

00 =

(16)

Def

erre

d Ta

x Li

abili

ty (D

TL) V

alue

Com

pany

Rec

ords

X1.

000

=

(17)

Tax

Sens

itivi

ty T

est:

Tota

l Adj

uste

d C

apita

lLi

ne (1

2)+(

13)+

(14)

+(15

)+(1

6)

Ex D

TA A

CL

RB

C R

atio

Sen

sitiv

ity T

est

(18)

Def

erre

d Ta

x A

sset

-Com

pany

Am

ount

sPa

ge 2

Col

umn

3 Li

ne 1

8.2

X1.

000

=

(19)

Tota

l Adj

uste

d C

apita

l Les

s Def

erre

d Ta

x A

sset

Am

ount

sLi

ne (1

2) le

ss L

ine

(18)

(20)

Aut

horiz

ed C

ontro

l Lev

el R

BC

LR

034

Ris

k-B

ased

Cap

ital L

evel

of A

ctio

n Li

ne (4

) X

1.00

0 =

(21)

Ex D

TA A

CL

RB

C R

atio

Li

ne (1

9 ) /

Line

(20)

0.

000%

A

CA

Fee

RB

C R

atio

Sen

sitiv

ity T

est

(22)

AC

A F

ee (D

ata

Yea

r Am

ount

to b

e Pa

id in

the

Fee

Yea

r)N

ote

22A

X1.

000

=(2

3)To

tal A

djus

ted

Cap

ital L

ess A

CA

Fee

Line

(12 )

less

Lin

e (2

2)

(24)

Aut

horiz

ed C

ontro

l Lev

el R

BC

LR

034

Ris

k-B

ased

Cap

ital L

evel

of A

ctio

n Li

ne (4

) (2

5)A

CA

Fee

RB

C R

atio

Line

(23 )

/ Li

ne (2

4)

0.00

0%

†In

clud

ing

subs

idia

ries o

wne

d by

hol

ding

com

pani

es.

‡M

ultip

ly st

atem

ent v

alue

by

perc

ent o

f ow

ners

hip.

§Th

e po

rtion

of t

he A

VR

that

can

be

coun

ted

as c

apita

l is I

imite

d to

the

amou

nt n

ot u

tiliz

ed in

ass

et a

dequ

acy

test

ing

in su

ppor

t of t

he A

ctua

rial O

pini

on fo

r res

erve

s.

Den

otes

item

s tha

t mus

t be

man

ually

ent

ered

on

the

filin

g so

ftwar

e.

Atta

chm

ent 9

XX

X/A

XX

X R

EIN

SUR

AN

CE

PR

IMA

RY

SE

CU

RIT

Y S

HO

RT

FAL

L B

Y C

ESS

ION

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Ces

sion

ID

NA

IC

Com

pany

C

ode

ID

Num

ber

Nam

e of

Com

pany

Req

uire

d L

evel

of

Prim

ary

Secu

rity

Prim

ary

Secu

rity

Prim

ary

Secu

rity

Sh

ortf

all

(000

0001

)(0

0000

02)

(000

0003

)(0

0000

04)

(000

0005

)(0

0000

06)

(000

0007

)(0

0000

08)

(000

0009

)(0

0000

10)

(000

0011

)(0

0000

12)

(000

0013

)(0

0000

14)

(000

0015

)(0

0000

16)

(000

0017

)(0

0000

18)

(000

0019

)(0

0000

20)

(999

9999

)

Den

otes

item

s tha

t mus

t be

man

ually

ent

ered

on

the

filin

g so

ftwar

e.

Atta

chm

ent 9

9/

5/20

14

0 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

C

AL

CU

LA

TIO

N O

F T

OT

AL

AD

JUST

ED

CA

PIT

AL

(I

nclu

ding

Tot

al A

djus

ted

Cap

ital T

ax S

ensi

tivity

Tes

t) LR

033

Basi

s of F

acto

rs

In d

eter

min

ing

the

C–1

risk

fact

ors,

avai

labi

lity

of th

e A

VR

and

vol

unta

ry in

vest

men

t res

erve

s to

abs

orb

spec

ific

loss

es w

as n

ot a

ssum

ed. T

here

fore

, the

AV

R is

cou

nted

as

capi

tal f

or

the

purp

oses

of t

he fo

rmul

a al

thou

gh it

rep

rese

nts

a lia

bilit

y an

d is

not

usa

ble

agai

nst g

ener

al c

ontin

genc

ies.

The

porti

on o

f the

AV

R th

at c

an b

e co

unte

d as

cap

ital i

s lim

ited

to th

e am

ount

not

util

ized

in a

sset

ade

quac

y te

stin

g in

sup

port

of th

e A

ctua

rial O

pini

on fo

r res

erve

s. V

olun

tary

inve

stm

ent r

eser

ves w

ere

elim

inat

ed fr

om T

otal

Adj

uste

d C

apita

l for

the

1997

ris

k-ba

sed

capi

tal f

orm

ula.

Th

e an

nual

sta

tem

ent p

rovi

sion

for f

utur

e di

vide

nds

can

prov

ide

a ge

nera

l cus

hion

aga

inst

pot

entia

lly a

dver

se fu

ture

exp

erie

nce.

As

a re

flect

ion

of th

is p

ossi

ble

cush

ion,

50

perc

ent o

f th

e an

nual

stat

emen

t div

iden

d lia

bilit

y is

incl

uded

. How

ever

, whe

n a

bloc

k is

rein

sure

d, su

ch c

redi

t to

Tota

l Adj

uste

d C

apita

l will

not

be

allo

wed

to e

ither

com

pany

unl

ess t

he c

ompa

ny

has

tota

l con

trol o

ver

the

divi

dend

dec

isio

n an

d th

e fu

ll be

nefit

of

a ch

ange

in th

e di

vide

nd s

cale

flo

ws

to th

e co

mpa

ny. A

fac

tor

of 2

5 pe

rcen

t of

the

divi

dend

liab

ility

is u

sed

in

sens

itivi

ty te

stin

g.

Subs

idia

ry a

mou

nts

othe

r tha

n th

e ca

rryi

ng v

alue

of A

lien

Insu

ranc

e Su

bsid

iarie

s –

Oth

er, a

re in

clud

ed a

s ap

prop

riate

reco

gniz

ing

that

this

sur

plus

is in

clud

ed w

ithin

the

surp

lus o

f the

pa

rent

. The

car

ryin

g va

lue

of A

lien

Insu

ranc

e Su

bsid

iarie

s –

Oth

er s

houl

d be

exc

lude

d fr

om th

e su

rplu

s of

the

pare

nt fo

r pur

pose

s of

com

putin

g To

tal A

djus

ted

Cap

ital.

Prop

erty

and

ca

sual

ty s

ubsi

diar

ies

shou

ld s

ubtra

ct a

ll no

n-ta

bula

r dis

coun

ts fr

om s

urpl

us to

arr

ive

at th

e ad

just

ed s

urpl

us fi

gure

. Thi

s ad

just

men

t to

surp

lus

was

pha

sed

in o

ver a

five

-yea

r per

iod

by

subt

ract

ing

20 p

erce

nt o

f the

non

-tabu

lar d

isco

unt t

he fi

rst y

ear a

nd a

n ad

ditio

nal 2

0 pe

rcen

t eac

h ye

ar th

erea

fter.

Beg

inni

ng w

ith th

e 19

98 ri

sk-b

ased

cap

ital f

orm

ula,

the

adju

stm

ent t

o su

rplu

s is 1

00 p

erce

nt. T

he sa

me

adju

stm

ent i

s mad

e to

the

surp

lus o

f a li

fe c

ompa

ny h

avin

g ow

ners

hip

of a

pro

perty

and

cas

ualty

subs

idia

ry.

The

law

s of

cer

tain

sta

tes

allo

w in

sure

rs to

issu

e a

form

of c

apita

l ins

trum

ent c

alle

d a

“cap

ital n

ote.

” A

cre

dit i

s al

low

ed to

Tot

al A

djus

ted

Cap

ital f

or a

cap

ital n

ote

that

sat

isfie

s al

l of

the

follo

win

g co

nditi

ons:

1.

In

a li

quid

atio

n, th

e ca

pita

l not

e ra

nks w

ith su

rplu

s not

es a

nd is

subo

rdin

ate

to th

e cl

aim

s of p

olic

yhol

ders

, cla

iman

ts a

nd g

ener

al c

redi

tors

. 2.

Th

e fo

rm a

nd c

onte

nt o

f the

cap

ital n

ote

was

app

rove

d by

the

com

mis

sion

er o

f the

insu

rer’

s sta

te o

f dom

icile

. 3.

A

t the

tim

e of

issu

ance

of t

he c

apita

l not

e, th

e ag

greg

ate

prin

cipa

l am

ount

did

not

exc

eed

25 p

erce

nt o

f the

Tot

al A

djus

ted

Cap

ital (

incl

udin

g th

e ag

greg

ate

prin

cipa

l am

ount

of

outs

tand

ing

capi

tal a

nd su

rplu

s not

es) a

s of t

he e

nd o

f the

imm

edia

tely

pre

cedi

ng c

alen

dar y

ear l

ess t

he a

ggre

gate

prin

cipa

l am

ount

of o

utst

andi

ng c

apita

l and

surp

lus n

otes

. 4.

Th

e te

rm o

f the

cap

ital n

ote

is n

ot le

ss th

an fi

ve y

ears

. 5.

A

t the

tim

e of

issu

ance

of t

he c

apita

l not

e:

a)

Th

e to

tal p

rinci

pal a

mou

nt o

f cap

ital n

otes

mat

urin

g in

any

one

yea

r did

not

exc

eed

5 pe

rcen

t of T

otal

Adj

uste

d C

apita

l (m

easu

red

at th

e tim

e of

issu

ance

); an

d

b)

The

tota

l prin

cipa

l am

ount

of c

apita

l not

es m

atur

ing

in a

ny th

ree-

year

per

iod

did

not e

xcee

d 12

per

cent

of T

otal

Adj

uste

d C

apita

l (m

easu

red

at th

e tim

e of

issu

ance

). 6.

Pa

ymen

t of i

nter

est,

divi

dend

or p

rinci

pal o

f the

cap

ital n

ote

is d

efer

red

if it

wou

ld h

ave

caus

ed:

a)

Th

e in

sure

r’s T

otal

Adj

uste

d C

apita

l to

drop

bel

ow it

s Com

pany

Act

ion

Leve

l Ris

k-B

ased

Cap

ital;

or

b)

Th

e in

sure

r’s T

otal

Adj

uste

d C

apita

l to

drop

bel

ow 1

25 p

erce

nt o

f its

Com

pany

Act

ion

Leve

l Ris

k-B

ased

Cap

ital,

and

ther

e is

a n

egat

ive

trend

on

the

Tren

d Te

st.

H

owev

er, u

pon

requ

est b

y th

e in

sure

r, th

e co

mm

issi

oner

of t

he in

sure

r’s s

tate

of d

omic

ile m

ay a

ppro

ve su

ch p

aym

ent i

f, in

the

com

mis

sion

er’s

judg

men

t, th

e fin

anci

al c

ondi

tion

of

the

insu

rer w

arra

nts i

t. 7.

Th

e co

mm

issi

oner

of t

he in

sure

r’s

stat

e of

dom

icile

may

hal

t all

paym

ents

on

the

capi

tal n

ote

if th

e in

sure

r’s

Tota

l Adj

uste

d C

apita

l dro

ps b

elow

thre

e tim

es th

e pr

inci

pal a

mou

nt

of th

e ca

pita

l and

surp

lus n

otes

the

insu

rer h

as o

utst

andi

ng.

8.

The

capi

tal n

ote

is tr

eate

d as

a li

abili

ty in

the

com

puta

tion

of st

atut

ory

surp

lus.

Atta

chm

ent 9

9/

5/20

14

1 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

9.

The

insu

rer i

ssui

ng th

e ca

pita

l not

e is

obl

igat

ed to

sup

ply

to th

e co

mm

issi

oner

of t

he in

sure

r’s

stat

e of

dom

icile

an

info

rmat

iona

l fili

ng in

a m

anne

r app

rove

d by

the

com

mis

sion

er

at th

e sa

me

time

the

insu

rer

files

its

annu

al s

tate

men

t, an

d at

suc

h ot

her t

imes

as

the

com

mis

sion

er d

eter

min

es n

eces

sary

. The

filin

g sh

all i

nclu

de a

nd b

e ba

sed

on th

e fo

llow

ing

guid

elin

es:

a)

Th

e fil

ing

shal

l dis

play

the

finan

cial

resu

lts o

f the

crit

eria

use

d to

det

erm

ine

whe

ther

pay

men

ts o

n th

e in

sure

r’s c

apita

l not

es n

eed

be a

ppro

ved

by th

e co

mm

issi

oner

or m

ay b

e ha

lted

by th

e co

mm

issi

oner

. Fur

ther

, it s

hall

spec

ifica

lly id

entif

y th

ose

resu

lts th

at e

ither

nec

essi

tate

com

mis

sion

er a

ppro

val o

f th

e pa

ymen

t or

give

the

com

mis

sion

er th

e op

tion

to h

alt p

aym

ent.

b)

Th

e in

sure

r sh

all n

otify

the

Com

mis

sion

er f

or in

form

atio

nal p

urpo

ses

of e

ach

forth

com

ing

paym

ent u

nder

a c

apita

l not

e no

t les

s th

an te

n bu

sine

ss d

ays

prio

r to

the

date

of

paym

ent,

nor m

ore

than

30

busi

ness

day

s prio

r to

the

date

of p

aym

ent.

c)

W

hene

ver a

n in

sure

r dec

lare

s its

inte

ntio

n to

exe

rcis

e th

e op

tion

to c

all o

r red

eem

a c

apita

l not

e pr

ior t

o th

e sc

hedu

led

mat

urity

, the

Com

mis

sion

er sh

all b

e no

tifie

d w

ithin

five

bu

sine

ss d

ays

follo

win

g th

e de

clar

atio

n, a

nd n

ot le

ss th

an 1

0 bu

sine

ss d

ays

prio

r to

the

decl

ared

rede

mpt

ion

date

. The

10-

day

perio

d sh

ould

be

mea

sure

d fr

om th

e da

te o

f the

co

mm

issi

oner

’s re

ceip

t of t

he n

otic

e.

The

cred

it fo

r a c

apita

l not

e is

redu

ced

as th

e no

te a

ppro

ache

s m

atur

ity (a

s ca

lcul

ated

on

LR03

2 C

apita

l Not

es b

efor

e Li

mita

tion)

. The

agg

rega

te c

redi

t for

cap

ital n

otes

is li

mite

d so

th

at th

e to

tal a

mou

nt o

f cap

ital a

nd su

rplu

s not

es in

clud

ed in

Tot

al A

djus

ted

Cap

ital i

s not

mor

e th

an o

ne-th

ird o

f Tot

al A

djus

ted

Cap

ital.

Tot

al A

djus

ted

Cap

ital i

s to

be r

educ

ed b

y th

e am

ount

of a

ny sh

ortf

all i

n Pr

imar

y Se

curi

ties a

s out

lined

in A

ctua

rial

Gui

delin

e X

LV

III.

Atta

chm

ent 9

9/

5/20

14

2 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

Spec

ific

Instr

uctio

ns fo

r App

licat

ion

of th

e Fo

rmul

a Li

nes (

3) a

nd (4

) W

hen

rein

sura

nce

is in

volv

ed (c

oins

uran

ce, m

odifi

ed c

oins

uran

ce, c

oins

uran

ce w

ith fu

nds w

ithhe

ld, o

r any

sim

ilar a

rran

gem

ent)

the

divi

dend

liab

ility

cre

dit i

nclu

ded

in T

otal

Adj

uste

d C

apita

l by

the

cedi

ng c

ompa

ny s

houl

d no

t be

allo

wed

in th

e ev

ent t

he c

edin

g co

mpa

ny c

anno

t rea

lize

the

finan

cial

ben

efits

ass

ocia

ted

with

a re

duct

ion

in th

e di

vide

nd li

abili

ty. A

t the

sa

me

time,

the

rein

sure

r sho

uld

not b

e al

low

ed a

cre

dit t

o To

tal A

djus

ted

Cap

ital f

or a

ny o

f the

div

iden

d lia

bilit

y, e

ven

if th

e di

rect

writ

er c

anno

t tak

e th

e To

tal A

djus

ted

Cap

ital c

redi

t, un

less

the

rein

sure

r can

dem

onst

rate

con

trol o

ver t

he d

ivid

end

deci

sion

of t

he d

irect

writ

er.

A “

no”

answ

er to

eith

er o

f the

follo

win

g tw

o qu

estio

ns e

limin

ates

the

com

pany

's ab

ility

to ta

ke th

e di

vide

nd li

abili

ty c

redi

t rel

ated

to su

ch re

insu

ranc

e:

1.

Doe

s the

com

pany

hav

e "t

otal

con

trol"

ove

r the

div

iden

d de

cisi

on?

2.

Doe

s th

e fu

ll be

nefit

of

any

futu

re a

bilit

y to

cha

nge

the

divi

dend

sca

le f

low

to th

e co

mpa

ny?

(In

cons

ider

ing

the

answ

er to

this

que

stio

n, th

e co

mpa

ny s

houl

d co

nsid

er th

e re

tain

ed a

nd re

insu

red

porti

ons s

epar

atel

y.)

Line

(5)

Fair

Val

ue T

AC

Adj

ustm

ent

- In

ord

er t

o m

itiga

te t

he e

ffect

s of

der

ivat

ive

acco

untin

g m

ism

atch

es a

n ad

just

men

t to

tot

al a

djus

ted

capi

tal

is r

equi

red

whe

n al

l of

the

fol

low

ing

cond

ition

s exi

st:

• th

e bo

nd is

not

car

ried

at fa

ir va

lue,

•

the

bond

is h

edge

d w

ith a

cre

dit d

eriv

ativ

e an

d R

BC

is b

eing

redu

ced

for t

he h

edge

, •

the

cred

it de

rivat

ive

is c

arrie

d at

fair

valu

e, a

nd

• th

e bo

nd h

as n

ever

bee

n w

ritte

n-do

wn

purs

uant

to th

e re

cord

ing

of a

n ot

her-

than

-tem

pora

ry im

pairm

ent.

Whe

n th

ese

cond

ition

s exi

st, t

he a

djus

tmen

t sha

ll ne

ver b

e le

ss th

an z

ero

and

shal

l be

base

d on

any

unr

ealiz

ed g

ain

of th

e cr

edit

deriv

ativ

e, d

eter

min

ed a

s the

less

er o

f 1 o

r 2 b

elow

:

1. B

ook/

Adj

uste

d C

arry

ing

Val

ue o

f the

cre

dit d

eriv

ativ

e fr

om S

ched

ule

DB

min

us th

e su

m o

f the

Prio

r Yea

r and

Cur

rent

Yea

r Ini

tial C

ost o

f the

cre

dit d

eriv

ativ

e fr

om

Sche

dule

DB

,

2. T

he re

duct

ion

in R

BC

aris

ing

from

the

hedg

e.

This

Fai

r Val

ue T

AC

Adj

ustm

ent s

hall

be a

pplie

d to

bas

ic a

nd in

term

edia

te h

edgi

ng re

latio

nshi

ps a

s des

crib

ed in

the

inst

ruct

ions

to th

e Sp

read

shee

t Com

puta

tion

of R

isk

Red

uctio

n. In

th

e ca

se o

f an

inte

rmed

iate

hed

ging

rela

tions

hip

any

unre

aliz

ed g

ain

attri

buta

ble

to th

e in

dex-

base

d cr

edit

deriv

ativ

e sh

all b

e de

term

ined

as

requ

ired

in “

1.”

abov

e th

en a

lloca

ted

to th

e in

divi

dual

bon

ds n

amed

in th

e in

dex-

base

d cr

edit

deriv

ativ

e on

the

basi

s of

thei

r par

val

ues

com

pare

d to

the

tota

l par

val

ue re

pres

ente

d by

the

inde

x. E

ach

allo

cate

d un

real

ized

gai

n w

ill th

en b

e us

ed a

s “1.

” ab

ove

for p

urpo

ses o

f det

erm

inin

g th

e Fa

ir V

alue

TA

C A

djus

tmen

t for

that

bon

d an

d he

dge

with

in th

e in

term

edia

te h

edgi

ng re

latio

nshi

p.

Line

s (6)

thro

ugh

(8)

The

sour

ce fo

r sub

sidi

ary

amou

nts s

houl

d be

repo

rted

from

the

subs

idia

ries’

ann

ual s

tate

men

ts. T

hese

am

ount

s sho

uld

be a

djus

ted

by p

erce

ntag

e of

ow

ners

hip

befo

re e

nter

ing.

All

U.S

. lif

e, p

rope

rty a

nd c

asua

lty a

nd in

vest

men

t sub

sidi

arie

s sh

ould

be

incl

uded

. An

adju

stm

ent t

o re

duce

the

Tota

l Adj

uste

d C

apita

l for

the

carr

ying

val

ue o

f Alie

n In

sura

nce

Subs

idia

ries –

O

ther

shou

ld b

e m

ade

for t

he p

aren

t com

pany

on

Line

(8).

Line

s (10

.1) t

hrou

gh (1

0.4)

Th

ese

lines

cal

cula

te th

e cr

edit

to T

otal

Adj

uste

d C

apita

l for

the

insu

rer’

s qu

alify

ing

capi

tal n

otes

. The

cal

cula

tion

on L

ine

(10.

2) li

mits

the

cred

it fo

r cap

ital n

otes

so

the

tota

l am

ount

of

cap

ital a

nd su

rplu

s not

es in

clud

ed in

Tot

al A

djus

ted

Cap

ital i

s not

mor

e th

an o

ne-h

alf o

f Tot

al A

djus

ted

Cap

ital f

rom

oth

er so

urce

s. Th

is is

equ

ival

ent t

o a

limit

of o

ne-th

ird o

f Tot

al

Adj

uste

d C

apita

l fro

m a

ll so

urce

s, in

clud

ing

the

capi

tal a

nd su

rplu

s not

es th

emse

lves

.

Atta

chm

ent 9

9/

5/20

14

3 ©

199

3-20

14 N

atio

nal A

ssoc

iatio

n of

Insu

ranc

e C

omm

issi

oner

s

Lin

e 11

L

ine

(11)

shou

ld in

clud

e th

e en

tire

amou

nt o

f any

shor

tfal

l in

Prim

ary

Secu

ritie

s as o

utlin

ed in

Act

uari

al G

uide

line

XL

VII

I.

Atta

chm

ent 9

Th

is p

age

inte

nti

onal

ly le

ft b

lan

k.






DATE: 12/14/2014


TELEPHONE: 816-783-8121



NAME: Mark Birdsall

TITLE: Chair


ADDRESS:

FOR NAIC USE ONLY

Agenda Item # 2014-35b-L

Year 2015

DISPOSITION

[ ] ADOPTED

[ ] REJECTED

[ ] DEFERRED TO


[ ] EXPOSED

[ ] OTHER (SPECIFY)




DESCRIPTION OF CHANGE(S) The proposed change would add a line to LR031 Calculation of Authorized Control Level Risk-Based Capital to show any shortfall of Primary Securities per Actuarial Guideline XLVIII.

REASON OR JUSTIFICATION FOR CHANGE ** The proposed change would increase authorized control level RBC by the amount of any shortfall of Primary Securities per Actuarial Guideline XLVIII.


Attachment 10

CA

LCU

LATI

ON

OF

AU

THO

RIZ

ED C

ON

TRO

L LE

VEL

RIS

K-B

ASE

D C

API

TAL

(1)

RB

CSo

urce

Req

uire

men

tA

sset

Ris

k - A

ffilia

ted

Am

ount

s (C

-0)

(1)

Affi

liate

d U

S Pr

oper

ty-C

asua

lty In

sure

rs D

irect

ly O

wne

dLR

039

Sum

mar

y fo

r Affi

liate

d In

vest

men

ts C

olum

n (4

) Lin

e (1

)(2

)A

ffilia

ted

US

Life

Insu

rers

Dire

ctly

Ow

ned

LR03

9 Su

mm

ary

for A

ffilia

ted

Inve

stm

ents

Col

umn

(4) L

ine

(2)

(3)

Affi

liate

d U

S H

ealth

Insu

rers

Dire

ctly

and

Indi

rect

ly O

wne

dLR

039

Sum

mar

y fo

r Affi

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Sum

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Sum

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Sum

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Alie

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LR03

9 Su

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017

Off-

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Pre

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Sum

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hrou

gh (8

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ffect

LR03

0 C

alcu

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Tax

Effe

ct fo

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Cap

ital C

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(11)

Net

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Ass

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Off-

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Sum

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9 Su

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Effe

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Cal

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Off-

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Col

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LR03

9 Su

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Affi

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9 Su

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Affi

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Sum

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ts C

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Oth

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Off-

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She

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Con

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Pre-

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Sum

of L

ines

(21)

thro

ugh

(39)

(41)

(C-1

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ffect

LR03

0 C

alcu

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Effe

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r Life

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ased

Cap

ital C

olum

n (2

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Life

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Life

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Hea

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Res

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026

Prem

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LR03

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Effe

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Cap

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Inte

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LR03

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Effe

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ased

Cap

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olum

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e (1

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(52)

Net

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1)

Hea

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Tota

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028

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030

Cal

cula

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027

Inte

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umn

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(57)

(C-3

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Effe

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Cap

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Den

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ually

ent

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Prem

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9 B

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029

Bus

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0 C

alcu

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Effe

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Cap

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029

Bus

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030

Cal

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(20)

+ L

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5)²

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66)²]

(68)

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Secu

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XX

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(7) L

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9999

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at c

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e ca

used

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ccur

sim

ulta

neou

sly.

The

cov

aria

nce

adju

stm

ent s

tate

s th

at th

e co

mbi

ned

effe

ct o

f the

C–1

o, C

-1cs

, C–2

and

C–3

and

a p

ortio

n of

the

C-4

risk

s ar

e no

t equ

al

to th

eir s

um b

ut a

re e

qual

to th

e sq

uare

root

cal

cula

tion

desc

ribed

bel

ow. I

t is

stat

istic

ally

ass

umed

that

the

C–1

o ris

k an

d a

porti

on o

f the

C–3

risk

are

cor

rela

ted,

whi

le th

e C

-1cs

risk

, th

e C

–2 ri

sk, t

he b

alan

ce o

f the

C-3

risk

and

a p

ortio

n of

the

C-4

risk

are

inde

pend

ent o

f bot

h. T

he s

plit

of th

e C

-3 a

nd C

-4 ri

sks

allo

ws

for g

ener

al c

onsi

sten

cy w

ith th

e he

alth

RB

C

form

ula.

Thi

s ass

umpt

ion

prov

ides

a re

ason

able

app

roxi

mat

ion

of th

e ca

pita

l req

uire

men

ts n

eede

d at

any

par

ticul

ar le

vel o

f los

ses.

Aut

horiz

ed C

ontro

l Lev

el R

isk-

Bas

ed C

apita

l is

50 p

erce

nt o

f th

e su

m o

f th

e C

-0 p

lus

the

C–4

a ris

k-ba

sed

capi

tal a

nd th

e sq

uare

roo

t of t

he s

um o

f the

C–1

o an

d C

–3a

risk-

base

d ca

pita

l sq

uare

d, t

he C

-1cs

and

C-3

c ris

k-ba

sed

capi

tal

squa

red,

the

C–2

ris

k-ba

sed

capi

tal

squa

red,

the

C-3

b ris

k-ba

sed

capi

tal

squa

red

and

the

C-4

b ris

k-ba

sed

capi

tal

squa

red

incr

ease

d fo

r the

am

ount

of P

rimar

y Se

curit

y sh

ortfa

lls fo

r all

cess

ions

cov

ered

by

Act

uaria

l Gui

delin

e X

LVII

I. M

anda

tory

Con

trol L

evel

Ris

k-B

ased

Cap

ital i

s 70

perc

ent o

f Aut

horiz

ed C

ontro

l Lev

el R

isk-

Bas

ed C

apita

l. Sp

ecifi

c In

struc

tions

for A

pplic

atio

n of

the

Form

ula

All

amou

nts r

efle

cted

for t

he c

alcu

latio

n of

Aut

horiz

ed C

ontro

l Lev

el R

isk-

Bas

ed C

apita

l will

be

calc

ulat

ed a

utom

atic

ally

by

the

softw

are.

In

rec

ogni

tion

of th

e ex

clus

ion

of th

e ca

rryi

ng v

alue

of A

lien

Insu

ranc

e Su

bsid

iarie

s –

Oth

er fr

om T

otal

Adj

uste

d C

apita

l, th

e ca

rryi

ng v

alue

of t

hese

ent

ities

is a

lso

to b

e ex

clud

ed

from

the

calc

ulat

ion

of C

-O ri

sk-b

ased

cap

ital.

Atta

chm

ent 1

0

Rules for RBC Cushion for Captive Transactions

RBC Cushion only needs to be calculated for entities reinsuring Covered Policies (as defined in AG-48, excluding entities assuming only risks exempted per Section 3 of AG-48 ). For the purposes of the descriptions below, the term “captives” is to mean the assuming insurer of non-exempt transactions as defined in AG-48.

The primary objective of this calculation is to determine if there is a capital shortfall at the captive. In certain instances, captives do not report financial results according to U.S. Statutory Accounting rules. In those instances, a “pro forma” view of the transaction will be necessary (see #2.d. below).

For the purposes of the rules described below, TAC means Total Adjusted Capital and CAL means Company Action Level RBC (200% of Authorized Control Level).

The following situations may exist:

1. For instances where the ceding company is already calculating and holding a C-0 charge because the captive is an admitted subsidiary: No need for additional RBC cushion, as the C-0 calculation will automatically adjust for any capital shortfall. If the captive has TAC < 100% CAL RBC, the TAC shortfall will already be reflected in the numerator of the parent, so no further TAC adjustment is needed. The denominator will continue to be the sum of the ceding company and captive company CAL RBC amounts.

2. For instances where the ceding company is not already calculating and holding a C-0 charge for the captive: a. If the captive files an RBC report and has TAC>= CAL: RBC Cushion at ceding company = 0.

There is no capital shortfall at the captive.

b. If the captive files RBC report and has TAC <CAL: RBC Cushion at ceding company = CAL RBC[captive] – TAC[captive]. TAC at ceding company is reduced by this amount. This calculates capital shortfall of captive.

c. If the captive does not file RBC, but reports its financial condition to its regulator using U.S.

Statutory Accounting: RBC Cushion at ceding company = Max (0, (CAL RBC[captive] – TAC[captive]). TAC at ceding company is reduced by this amount. This calculates capital shortfall of captive, using NAIC RBC instructions to determine CAL and TAC at the captive, even though no RBC report is filed. If the captive does not file an NAIC Annual Statement Blank, the company will have to rely on company records rather than line items from the Statement Blank.

Attachment 11

1

d. If captive does not file RBC and does not report its financial condition to its regulator using

U.S. Statutory Accounting: Ceding company is to develop pro forma statutory statement for the captive, assuming collateral security for the reserve credit are all admitted assets (determines Adjusted Assets), liabilities are based on reserves ceded (determines Adjusted Liabilities), and TAC is based on Adjusted Assets minus Adjusted Liabilities. RBC Cushion at ceding company = Max (0, (CAL RBC[captive] – TAC[captive]). TAC at ceding company is reduced by this amount. This calculation calculates the RBC as if the captive does file financial statements using U.S. Statutory Accounting. These values should be readily available from work performed to comply with AG-48. This would eliminate any potential arbitrage opportunities of forming a captive that does not use U.S. Statutory Accounting.

3. For instances where the captive assumes business from more than one ceding company:

e. If the captive reports its financial condition to its regulator using U.S. Statutory Accounting

and there is a RBC shortfall: Follow #2.b. and #2.c above, as appropriate, to determine the amount of the shortfall. The shortfall should be allocated to ceding companies on a pro rata basis, using reserves ceded by the ceding companies for the pro ration. For the purposes of this calculation, this is a reasonable way to allocate the RBC shortfall.

f. If the captive does not report its financial condition to its regulator using U.S. Statutory

Accounting: Follow #2.d. above using actual liabilities ceded, pro rata assets (by reserves ceded), and pro rata TAC (by reserves ceded) to determine allocation for each ceding company. For the purposes of this calculation, this is a reasonable way to allocate the assets, liabilities, and surplus of the captive. Once allocated, the RBC shortfall can be directly calculated according to #2.d.

Attachment 11

2

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