Statutory Accounting Principles Working Group s9

Ref #2016-44

Statutory Accounting Principles (E) Working Group Maintenance Agenda Submission Form Form A

Issue: Revisions to Appendix A-791

Check (applicable entity): P/C Life Health Modification of existing SSAP New Issue or SSAP Interpretation

Description of Issue: During a review of jurisdictions for accreditation, it was identified that the 1992 revisions to add Section 5(C) of the Life and Health Reinsurance Agreements Model Regulation (#791), which is a required element for accreditation, was not incorporated into Appendix A-791, Life and Health Reinsurance Agreements. Upon review of A-791, the guidance within paragraphs 4-5 is interpreted from the language in Section 5(A) and 5(B) of Model #791. As the context of paragraphs 4-5 (Written Agreements) is consistent with the language in Section 5 of Model #791, including the guidance in Section 5(C) of Model #791 to A-791 is appropriate.

Existing Authoritative Literature: SSAP No. 62R—Property and Casualty Reinsurance contains similar language to Section 5(C) of Model #791:

8. In addition to credit for reinsurance requirements applicable to reinsurance transactions generally, no credit or deduction from liabilities shall be allowed by the ceding entity for reinsurance recoverable where the agreement was entered into after the effective date of these requirements (see paragraphs 108 and 109) unless each of the following conditions is satisfied:

c. The agreement shall constitute the entire contract between the parties and must provide no guarantee of profit, directly or indirectly, from the reinsurer to the ceding entity or from the ceding entity to the reinsurer;

Appendix A-791, Life and Health Reinsurance Agreements

Written Agreements

4. No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the “as of date” of the financial statement.

5. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

Life and Health Reinsurance Agreements Model Regulation (#791)

Section 5. Written Agreements

A. No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement filed with the Department, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement.

B. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

(1) The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and

(2) Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

Activity to Date (issues previously addressed by the Working Group, Emerging Accounting Issues (E) Working Group, SEC, FASB, other State Departments of Insurance or other NAIC groups): Agenda item 1999-12 adopted the Q&A section of A-791 in accordance with a recommendation from the Life Insurance and Annuities (A) Committee.

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

Convergence with International Financial Reporting Standards (IFRS): N/A

Staff Recommendation: Staff recommends that the Working Group move this item to the active listing, categorized as nonsubstantive and expose revisions to A-791, as detailed below.

Written Agreements

4. No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the “as of date” of the financial statement.

5. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

6. The reinsurance agreement shall contain provisions which provide that:

a. The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and

b. Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

Staff Review Completed by: Josh Arpin, NAIC Staff – October 2016

Status: On December 10, 2016, the Statutory Accounting Principles (E) Working Group moved this agenda item to the active listing, categorized as nonsubstantive, and exposed revisions to incorporate additional language from the Life and Health Reinsurance Agreements Model Regulation (#791) to note that the reinsurance agreement shall constitute the entire agreement and that amendments are required to be signed by all parties to be effective. D:\Docs\2018-04-18\0fcabb3a5f187b29c29467097a7e2069.docx