Financial Analysis Handbook - naic.org

1 naic Financial Analysis Solvency ToolsFinancial Analysis Handbook2016 $nnual/20 7 4 XarterlyVolume 2 2017 Accounting & ReportingInformation about statutory accounting principles and the procedures necessary for fi ling fi nancial annual statements and conducting risk-based capital InformationImportant answers to common questions about auto, home, health and life insurance as well as buyer s guides on annuities, long-term care insurance and Medicare supplement Regulation Useful handbooks, compliance guides and reports on fi nancial Analysis , company licensing, state audit requirements and collection of naic model laws, regulations and guidelines; state laws on insurance topics; and other regulatory guidance on antifraud and consumer RegulationRegulatory and industry guidance on market-related issues, including antifraud, product fi ling requirements, producer licensing and market ActivitiesNAIC member directories, in-depth reporting of state regulatory activities and offi cial historical records of naic national meetings and other more information about naic publications, view our online catalog at.

2 Special StudiesStudies, reports, handbooks and regulatory research conducted by naic members on a variety of insurance-related ReportsValuable and in-demand insurance industry-wide statistical data for various lines of business, including auto, home, health and life ProductsGuidance manuals, handbooks, surveys and research on a wide variety of Markets & Investment AnalysisInformation regarding portfolio values and procedures for complying with naic reporting Papers Relevant studies, guidance and naic policy positions on a variety of insurance topics. 2017 National Association of Insurance Commissioners. All rights : 978-1-59917-947-6 Printed in the United States of AmericaNo part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any storage or retrieval system, without written permission from the Executive Offi ce444 North Capitol Street, NWSuite 700 Washington, DC 20001 Central Offi ce1100 Walnut StreetSuite 1500 Kansas City, MO Capital Markets& Investment Analysis Offi ceOne New York Plaza, Suite 4210 New York, NY naic is the authoritative source for insurance industry information.

3 Our expert solutions support the efforts of regulators, insurers and researchers by providing detailed and comprehensive insurance information. The naic offers a wide range of publications in the following categories: -- Date: January 4, 2017 To: Users of the naic s Financial Analysis Handbook From: naic Staff This edition of the naic Financial Analysis Handbook is to be used in conjunction with the 2016 Annual and 2017 Quarterly Financial Statements. The following summarizes the most significant changes since the prior edition: Level 1 All Statements In the reference guide, in a new section titled Understanding the Insurer in Risk-focused Financial Analysis , additional guidance was added to encourage analysts to review existing sources of information already available to the insurance department and make inquiries to the lead state prior to requesting additional information from the insurer for certain risk areas.

4 Level 2 Investments Additional guidance and procedures were added to assist in determining whether concerns exist regarding the insurer s exposure to certain classes of BA assets, specifically hedge fund and private equity funds, and the insurer s level of expertise in investing in alternative investments. Level 2 Property/Casualty Reinsurance Additional guidance and procedures were added to assist in determining whether there is a trend of commutations and if it has a favorable/unfavorable impact on the insurer. Supplemental Procedures Management Considerations Additional guidance and a procedure were added to assist the analyst in evaluating the insurer s human capital and succession planning. Group-wide Supervision Lead State Insurance Holding Company System Analysis Guidance and procedures were updated to assist the analyst in the lead state Analysis process. In order to eliminate redundant guidance and clarify lead state guidance, three chapters from Group-wide Supervision were combined into two chapters and clarifying edits were made.

5 If you have questions regarding the Financial Analysis Handbook , contact Ralph Villegas, Life/A&H Financial Analysis Manager at (816) 783-8411, or Rodney Good, Property/Casualty Financial Analysis Manager at (816) 786-8430, or Bill Rivers, Health Financial Analysis Program Manager at (816) 783-8142, ** This section must be completed on all forms. 2014-2017 National Association of Insurance Commissioners EXAMINATION OVERSIGHT (E) TASK FORCE INSTRUCTIONS FOR naic USE ONLY 1. Complete this form for EACH Handbook proposal. Under "Identification of Item(s) to be Changed," include section & page number, line or item identifier. 2. All attachments should be presented in a format wherein new language is underscored and deletions struck through. 3. Please consider whether this revision proposal is also addressed elsewhere in the Handbook . 4. CAUTION: before completing this form, please read additional instructions on reverse side of this form.

6 DISPOSITION [ ] ADOPTED [ ] REJECTED [ ] DEFERRED [ ] OTHER (SPECIFY) [ ] DATE: NAME: TITLE: STATE: ADDRESS: TELEPHONE: CONTACT PERSON: NOTES Handbook SECTIONS TO WHICH PROPOSAL APPLIES [ ] Introductory Chapters [ ] Financial Analysis Framework [ ] Level 1 Annual Procedures / Analyst Reference Guide [ ] Level 1 Quarterly Procedures / Analyst Reference Guide [ ] Level 2 Annual Procedures / Analyst Reference Guide [ ] Level 2 Quarterly Procedures / Analyst Reference Guide [ ] Life/A&H/Fraternal [ ] Life/A&H/Fraternal [ ] Property & Casualty/ Title [ ] Property & Casualty/Title [ ] Health [ ] Health [ ] Supplemental Procedures / Analyst Reference Guide [ ] Group-Wide Supervision Procedures / Analyst Reference Guide [ ] Guidance for Notes to Financial Statements [ ] Health Insurance Industry [ ] Appendices [ ]

7 Other IDENTIFICATION OF ITEM(S) TO BE CHANGED REASON OR JUSTIFICATION FOR CHANGE ** (STATE, IN SPECIFIC TERMS, THE BENEFIT TO BE DERIVED FROM THIS PROPOSAL) Financial Analysis Handbook WORKING GROUP Financial Analysis Handbook Proposed Revision Form SUBMIT TO naic KC By June 1, 2017 ** This section must be completed on all forms. 2014-2017 National Association of Insurance Commissioners Additional Instructions and Information The Financial Analysis Handbook (E) Working Group meets via conference call throughout the year to consider proposed changes to the naic Financial Analysis Handbook ( Handbook ). Suggestions to the Handbook should be submitted by June 1, 2017. They will be reviewed by the Working Group and considered for adoption and implementation in the next Handbook edition. Send proposals via email to Ralph Villegas, Life/Health Financial Analysis Manager, or fax to 816-460-7563; or send to Rodney Good, Property/Casualty Financial Analysis Manager, or fax to 816-460-0176.

8 Original copies may be sent to: National Association of Insurance Commissioners Financial Analysis & Examination Unit Financial Regulatory Services Department 1100 Walnut Street, Suite 1500 Kansas City, MO 64106-2197 For questions, call the Financial Analysis & Examination Unit at (816) 842-3600. Any member of a state insurance department is welcome to submit a Proposed Revision Form. The forms will be regarded as submitted on behalf of insurance departments rather than individuals. Proposed Procedure Revisions During the Working Group s review, changes proposed via this form will be considered along with an Analysis conducted by the naic Financial Analysis & Examination Unit of the effectiveness of procedures.

9 This Analysis encompasses the effectiveness of ratio limits as well as the language of procedures. Additionally, the general usefulness of procedures is considered. Specific proposals from states relative to procedures are welcome and should include detailed Analysis . Proposed Revisions for Annual Statement Changes The Financial Analysis & Examination Unit also studies adopted changes to the Annual Statements and provides revision proposals to the Working Group. The Financial Analysis & Examination Unit automatically makes changes to the Handbook for minor changes, such as for page and line numbers. Specific proposals are welcome. Additionally, please alert the Financial Analysis & Examination Unit to any overlooked minor annual statement changes. Proposed Software Revisions The Handbooks are automated on I-SITE. The Handbook is intended to be a dynamic tool. The Working Group is interested in feedback on both analytical and software features.

10 Please contact the naic Help Desk at (816) 842-3600 before submitting a form. Many enhancements have been proposed which could not be implemented. Also, some proposals may relate to existing features that the Help Desk may be able to explain. Financial Analysis Handbook 2016 Annual / 2017 Quarterly Preface The naic Financial Analysis Handbook ( Handbook ) was developed and released by the Financial Analysis Handbook Working Group of the Examination Oversight (E) Task Force in 1997 for Property/Casualty and Life/A&H, and in 2004 for Health. The purpose of the Handbook is to provide a uniform risk-focused Analysis approach for insurance departments to more accurately identify insurers and/or holding company systems experiencing Financial problems or to identify prospective risks that pose the greatest potential for developing Financial problems.