28 TAC §7.18
The Commissioner of Insurance adopts amendments to §7.18,
concerning the adoption by reference of the Accounting
Practices and Procedures Manual, including new statements of
statutory accounting principles (SSAPs) and new actuarial guidelines.
The amended section is adopted with nonsubstantive changes to the
proposed text as published in the April 10, 2009, issue of the Texas Register
(34 TexReg 2369).
REASONED JUSTIFICATION. The adopted amendments to §7.18 are
necessary to adopt by reference the March 2008 version of the Accounting
Practices and Procedures Manual (Manual) and various substantive and
nonsubstantive updates to this version of the Manual issued by the
National Association of Insurance Commissioners (NAIC) in calendar-year
2008, and to make several minor clarifications to the text in §7.18(a)
and (b). The adopted substantive updates include new statements of
statutory accounting principles (SSAPs) and new actuarial guidelines.
SSAPs provide guidance to insurers and HMOs, including accountants
employed or retained by these entities, on how to properly record
business transactions for the purpose of accurate statutory reporting.
These insurers and HMOs are referred to collectively as "carriers"
in this proposal. SSAPs provide a nationwide standard method of accounting,
which most carriers are required to use for statutory financial reporting
guidance. Therefore, SSAPs provide for a more consistent reporting
of financial information from carriers. However, SSAPs do not preempt
individual state legislative or regulatory authority. SSAPs are adopted
by the National Association of Insurance Commissioners (NAIC) through
its maintenance of statutory accounting principles process, which
involves the development and proposal of new SSAPs, holding a public
hearing, providing the opportunity for public comment, and adoption
by the NAIC. The Accounting Practices and Procedures Manual (Manual),
published by the NAIC, is a comprehensive guide to statutory accounting
principles and includes the SSAPs that have been adopted by the NAIC.
SSAPs provide the source of statutory accounting principles for the
Department when analyzing financial reports and for conducting statutory
examinations and rehabilitation of carriers licensed in Texas, except
where otherwise provided by law. Except for adopted new SSAP No. 98
and adopted new Actuarial Guideline XLIII (AG 43), the March 2008
version of the Manual and the updates to it must be used to prepare
all financial statements filed with the Department for reporting periods
beginning on or after January 1, 2009. Adopted new SSAP No. 98 is
effective for reporting periods ending on or after September 30, 2009,
and thereafter, and shall be used to prepare all financial statements
filed with the Department after September 30, 2009, beginning with
the third quarter 2009 financial statements. Adopted new AG 43 is
effective December 31, 2009, and shall be used to prepare all financial
statements filed with the Department after January 1, 2010, beginning
with the 2009 annual statements for the reporting period as of December 31, 2009.
While the Department did not receive any comments on the proposal,
the Department has made minor nonsubstantive changes to the proposed
text as adopted. These minor changes, however, do not materially alter
issues raised in the proposed rule, introduce new subject matter,
or affect persons other than those previously subject to the proposal
as originally published. For purposes of clarity and consistency,
the Department has made a minor change to correct punctuation in §7.18(a).
As adopted, subsection (a) has been revised to replace a comma with
a semicolon after the phrase "Preferred Mortality Tables." The Department
also has revised §7.18(c) and (c)(1)(A) as adopted to reflect
a change in the effective date of SSAP No. 98 and in the applicability
of SSAP No. 98 to Department examinations and financial statements
submitted to the Department. This revision is necessary to reflect
the change in the effective date and applicability of SSAP No. 98
that was issued by the NAIC in April 2009. Specifically, the effective
date and applicability of SSAP No. 98 have been changed from becoming
effective for reporting periods beginning January 1, 2009, and thereafter,
to becoming effective for reporting periods ending on or after September
30, 2009, and thereafter. The Department has also made a nonsubstantive
editorial change to the published text to add the word "and" that
was inadvertently omitted after the semicolon at the end of subsection
(c)(1)(B)(xvii).
The following paragraphs provide a brief summary as well as an
analysis of the reasons for the adopted amendments. An adopted amendment
to §7.18(a) adds the phrase "with the exceptions and additions
set forth in subsections (c) and (d) of this section." This adopted
amendment is necessary to clarify that the March 2008 Accounting Practices and Procedures Manual,
including
the exceptions and additions specified in §7.18(c) and (d), will
be utilized as the guideline for statutory accounting principles in
Texas to the extent the Manual does not conflict with provisions of
the Insurance Code or rules of the Department. Also, an adopted amendment
to §7.18(a) adds the internal reference "of this subsection"
to clarify that the paragraphs (1) - (3) that are specified as preempting
any contrary provisions in the Manual refer to paragraphs (1) - (3)
of §7.18(a). Also, adopted amendments to §7.18(a) correct
references to the titles of Department rules relating to Memorandum
Regulation; Policy Reserves; and Claims Reserves. Corrections to punctuation
have also been made in §7.18(a) for purposes of clarity, consistency,
and readability.
Under the adopted amendments to §7.18(b), the Commissioner
adopts by reference the March 2008 version of the Manual, with the
exceptions and additions set forth in subsections (c) and (d). For
purposes of clarity and accuracy, an adopted amendment to §7.18(b)
replaces the word "examining" with the word "analyzing." This adopted
amendment is necessary to clarify that the Manual will serve as the
source of accounting principles for the Department when analyzing
financial reports and for conducting statutory examinations and rehabilitations
of insurers and health maintenance organizations licensed in Texas,
except where otherwise provided by law. Also, adopted amendments to §7.18(b)
provide that the March 2008 version of the Manual (i) shall be applied
to examinations conducted as of January 1, 2009, and thereafter; and
(ii) shall be used to prepare all financial statements filed with
the Department for reporting periods beginning on or after January
1, 2009. These adopted amendments are necessary to clarify the purpose
and application of the March 2008 version of the Manual.
Under the adopted amendments to §7.18(c), the Commissioner
adopts the exceptions and additions to the Manual that are specified
in §7.18(c)(1) and (2). The adopted amendments provide that these
exceptions and additions (i) shall be applied to examinations conducted
as of January 1, 2009 and thereafter, and (ii) also shall be used
to prepare all financial statements filed with the Department for
reporting periods beginning on or after January 1, 2009, except as
provided in adopted amendments to §7.18(c)(1)(A) concerning SSAP
No. 98 and in adopted new §7.18(c)(1)(C) concerning AG 43. Under
the amendments to §7.18(c)(1), the following SSAPs are adopted
by reference: (i) SSAP No. 91R, which provides guidance on subsequent
fair value measurement of servicing assets and servicing liabilities;
(ii) SSAP No. 98, which establishes statutory accounting principles
for impairment analysis and subsequent valuation of loan-backed and
structured securities and amends SSAP No. 43, paragraphs 14 through
16; and (iii) SSAP No. 99, which provides statutory accounting guidance
subsequent to an other-than-temporary impairment; SSAP No. 99 supersedes
SSAP No. 26, paragraph 9; SSAP No. 32, paragraphs 22 - 24; and SSAP
No. 43, paragraph 16; SSAP No. 99 also modifies SSAP No. 34, paragraph
3. Adopted new SSAPs Nos. 91R and 99 must be used to prepare all financial
statements filed with the Department for reporting periods beginning
on or after January 1, 2009. Adopted new SSAP No. 98 is effective
for reporting periods ending on or after September 30, 2009, and thereafter,
and shall be used to prepare all financial statements filed with the
Department after September 30, 2009, beginning with the third quarter
2009 financial statements. Newly designated §7.18(c)(1)(A), which
replaces §7.18(c)(1) in the existing rules, deletes all references
to SSAP No. 97, because SSAP No. 97 is included in the March 2008
version of the Manual. Under newly designated §7.18(c)(1)(B),
which replaces §7.18(c)(2) in existing rules, nonsubstantive
modifications are adopted by reference to SSAP Nos. 5, 15, 21, 22,
26, 30, 32, 40, 41, 43, 48, 52, 54, 55, 63, 65, 68, 86, and 91, and
to the Preamble section of the Manual. These nonsubstantive modifications,
which were issued by the NAIC in calendar-year 2008, clarify language
or change disclosures, appendices, or other material referenced in
SSAPs already included in the March 2008 version of the Manual. Newly
designated §7.18(c)(1)(B), which replaces §7.18(c)(2) in
existing rules, also deletes all references to the nonsubstantive
modifications to SSAP Nos. 1, 10, 22, 26, 55, 56, 61, 62, 72, and
80 because the March 2008 version of the Manual includes all of these
nonsubstantive modifications. Existing §7.18(c)(2)(A) - (N) are
redesignated as §7.18(c)(1)(B)(i) - (xiv) and new clauses (xv)
- (xvii) are added to §7.18(c)(1)(B). New §7.18(c)(1)(C)
adopts by reference three new actuarial guidelines and revisions to
two existing actuarial guidelines developed by the NAIC in calendar-year
2008. Under new §7.18(c)(1)(C), the following new guidelines
are adopted by reference: (i) AG 43, which provides reserve requirements
for variable annuities and similar products with or without guaranteed
minimum death benefits or guaranteed minimum living benefits and replaces
AG 34 and AG 39, effective December 31, 2009; (ii) Actuarial Guideline
XLIV (AG 44), which provides reserve requirements and guidance for
group term life waiver of premium disability reserves, effective January
1, 2009; and (iii) Actuarial Guideline XLV (AG 45), which provides
nonforfeiture requirements and guidance for life insurance having
certain intermediate cash benefits such as return of premium benefits,
effective January 1, 2009. New §7.18(c)(1)(C) also adopts by
reference revisions to Actuarial Guideline XXXIV (AG 34) and Actuarial
Guideline XXXIX (AG 39). Both of these guidelines address the replacement
and transition from applying AG 34 and AG 39 to applying new AG 43.
Existing §7.18(c)(3) - (7) is re-designated as §7.18(c)(2)(A)
- (E) without changes to the existing rules.
HOW THE SECTION WILL FUNCTION. The adopted amendments to §7.18(a)
clarify that the purpose of this section is to adopt the March 2008
version of the Manual and the exceptions and additions set forth in
subsections (c) and (d) of this section with deference to Texas statutes
and regulations. The adopted amendments to §7.18(a) also correct
punctuation and references to the titles of Department rules referenced
in this subsection. The adopted amendments to §7.18(b) adopt
by reference the March 2008 version of the Manual, with the exceptions
and additions set forth in subsections (c) and (d). The adopted amendments
to §7.18(b) also replace the word "examining" with the word "analyzing"
to indicate that the Manual will serve as the source of accounting
principles for the Department when analyzing financial reports and
for conducting statutory examinations and rehabilitations of insurers
and health maintenance organizations licensed in Texas, except where
otherwise provided by law. Additionally, the adopted amendments to §7.18(b)
clarify the purpose and applicability of the March 2008 version of
the Manual. The adopted amendments to §7.18(c)(1)(A) adopt by
reference the new substantive SSAPs Nos. 91R and 99, which must be
used to prepare all financial statements filed with the Department
for reporting periods beginning on or after January 1, 2009. The adopted
amendments to §7.18(c)(1)(A) also adopt by reference the new
substantive SSAP No. 98, which must be used to prepare all financial
statements filed with the Department for reporting periods ending
on or after September 30, 2009. The adopted amendments to §7.18(c)
adopt nonsubstantive modifications to the SSAPs and the Preamble section
of the Manual in newly designated §7.18(c)(1)(B). Adopted amendments
to §7.18(c) also adopt by reference three new actuarial guidelines
(AG 43, AG 44, and AG 45) and revisions to two existing actuarial
guidelines (AG 34 and AG 39) in adopted new §7.18(c)(1)(C). The
adopted version of the Manual, combined with the SSAPs and actuarial
guidelines adopted by reference in subsection (c)(1), include substantially
all SSAPs, actuarial guidelines, and modifications to the SSAPs and
actuarial guidelines adopted by the NAIC through December 31, 2008.
SUMMARY OF COMMENTS AND AGENCY RESPONSE. The Department did not
receive any comments on the published proposal.
STATUTORY AUTHORITY. The amendments are adopted under
the Insurance Code Chapters 32, 36, 401, 404, 421, 425, 426, 441,
802, 823, 841, 843, 861, 862, and §36.001. Section 401.051 and §401.056
mandate that the Department examine the financial condition of each
carrier organized under the laws of Texas or authorized to transact
the business of insurance in Texas and adopt by rule procedures for
the filing and adoption of examination reports. Section 404.005(a)(2)
authorizes the Commissioner to establish standards for evaluating
the financial condition of an insurer. Section 421.001(c) requires
the Commissioner to adopt each current formula recommended by the
NAIC for establishing reserves for each line of insurance. Section
425.162 authorizes the Commissioner to adopt rules, minimum standards,
or limitations that are fair and reasonable as appropriate to supplement
and implement the Insurance Code Chapter 425, Subchapter C. Section
426.002 provides that reserves required by §426.001 must be computed
in accordance with any rules adopted by the Commissioner to adequately
protect insureds, secure the solvency of the workers' compensation
insurance company, and prevent unreasonably large reserves. Section
441.005 authorizes the Commissioner to adopt reasonable rules as necessary
to implement and supplement Chapter 441 of the Insurance Code (Supervision
and Conservatorship). Section 32.041 requires the Department to furnish
to the companies the required financial statement forms. Section 802.001
authorizes the Commissioner, as necessary to obtain an accurate indication
of the company's condition and method of transacting business, to
change the form of any annual statement required to be filed by any
kind of insurance company. Section 823.012 authorizes the Commissioner
to issue rules and orders necessary to implement the provisions of
Chapter 823 of the Insurance Code (Insurance Holding Company Systems).
Section 843.151 authorizes the Commissioner to promulgate rules as
are necessary to carry out the provisions of Chapter 843 of the Insurance
Code (Health Maintenance Organizations). Section 843.155 requires
a health maintenance organization to file an annual report with the
Commissioner, which shall include a financial statement of the health
maintenance organization certified by an independent public accountant.
Sections 841.004(b), 861.255(b), and 862.001(c) authorize the Commissioner
to adopt rules defining electronic machines and systems, office equipment,
furniture, machines and labor saving devices, and the maximum period
for which each such class may be amortized. Section 36.001 provides
that the Commissioner of Insurance may adopt any rules necessary and
appropriate to implement the powers and duties of the Texas Department
of Insurance under the Insurance Code and other laws of this state.
§7.18.National Association of Insurance Commissioners Accounting Practices and Procedures Manual.
(a) The purpose of this section is to adopt statutory
accounting principles, which will provide insurers and health maintenance
organizations, including accountants employed or retained by these
entities, guidance as how to properly record business transactions
for the purpose of accurate statutory reporting. The March 2008 version
of the Accounting Practices and Procedures
Manual (Manual) published by the National Association of Insurance
Commissioners (NAIC), with the exceptions and additions set forth
in subsections (c) and (d) of this section, will be utilized as the
guideline for statutory accounting principles in Texas to the extent
the Manual does not conflict with provisions of the Insurance Code
or rules of the department. The Commissioner reserves all authority
and discretion to resolve any accounting issues in Texas. When making
a determination on the proper accounting treatment for an insurance
or health plan transaction, the Commissioner shall refer to the sources
in paragraphs (1) - (6) of this subsection in the respective order
of priority listed. The sources in paragraphs (1) - (3) of this subsection
preempt any contrary provisions in the Manual. The department rules
that preempt any contrary provisions in the Manual, include, but are
not limited to: §§3.1501 - 3.1505, 3.1601 - 3.1608, 3.4505(f),
3.6101, 3.6102, 3.7001 - 3.7009, 3.9101 - 3.9106, 3.9401 - 3.9404,
7.7, 7.85 and 11.803 of this title (relating to Annuity Mortality
Tables; Actuarial Opinion and Memorandum Regulation; General Calculation
Requirements for Basic Reserves and Premium Deficiency Reserves; Policy
Reserves; Claims Reserves; Minimum Reserve Standards for Individual
and Group Accident and Health Insurance; 2001 CSO Mortality Table;
Preferred Mortality Tables; Subordinated Indebtedness, Surplus Debentures,
Surplus Notes, Premium Income Notes, Bonds, or Debentures, and Other
Contingent Evidences of Indebtedness; Audited Financial Reports; and
Investments, Loans, and Other Assets).
(1) Texas statutes;
(2) department rules;
(3) directives, instructions, and orders of the Commissioner;
(4) the Manual;
(5) other NAIC handbooks, manuals, and instructions,
adopted by the department; and
(6) Generally Accepted Accounting Practices.
(b) The Commissioner adopts by reference the March
2008 version of the Manual, with the exceptions and additions set
forth in subsections (c) and (d) of this section, as the source of
accounting principles for the department when analyzing financial
reports and for conducting statutory examinations and rehabilitations
of insurers and health maintenance organizations licensed in Texas,
except where otherwise provided by law. This adoption by reference
shall be applied to examinations conducted as of January 1, 2009 and
thereafter, and also shall be used to prepare all financial statements
filed with the department for reporting periods beginning on or after
January 1, 2009.
(c) The Commissioner adopts the exceptions and additions
to the Manual specified in paragraphs (1) and (2) of this subsection.
Except as provided in paragraph (1)(A) of this subsection concerning
Statement of Statutory Accounting Principles No. 98 (SSAP No. 98)
and in paragraph (1)(C) of this subsection concerning Actuarial Guideline
43, these exceptions and additions shall be applied to examinations
conducted as of January 1, 2009 and thereafter, and also shall be
used to prepare all financial statements filed with the department
for reporting periods beginning on or after January 1, 2009.
(1) In addition to the statements of statutory accounting
principles in the Manual, the following additions and exceptions are
adopted by reference:
(A) Statement of Statutory Accounting Principles (SSAP)
Nos. 91R and 99, adopted by the NAIC in calendar year 2008 and effective
January 1, 2009, and SSAP No. 98, adopted by the NAIC in calendar
year 2008 and effective September 30, 2009. SSAP No. 98 shall be applied
to examinations conducted as of September 30, 2009, and thereafter,
and also shall be used to prepare all financial statements filed with
the department filed with the Department after September 30, 2009,
beginning with the third quarter 2009 financial statements.
(B) Nonsubstantive modifications to SSAP Nos. 5, 15,
21, 22, 26, 30, 32, 40, 41, 43, 48, 52, 54, 55, 63, 65, 68, 86, and
91 and to the Preamble section of the Manual made by the NAIC in calendar
year 2008, as follows:
(i) Ref. No. 2008-25: FSP FAS 133-1 and FIN 45-4: Disclosures
about Credit Derivatives and Certain Guarantees, Amendments of FAS
133 and FIN 45, and Clarification of the Effective Date of FAS 161;
(ii) Ref. No. 2008-22: Disclosures for Funding Agreements
Issued to a Federal Home Loan Bank;
(iii) Ref. No. 2007-32: EITF 06-5: Accounting for Purchases
of Life Insurance - Determining the Amount That Could be Realized
in Accordance with FASB Technical Bulletin 85-4 and INT 07-05: Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Collateral
Assignment Split-Dollar Life Insurance Arrangements;
(iv) Ref. No. 2008-05: FSP FAS 13-2: Accounting for
a Change or Projected Change in the Timing of Cash Flows Relating
to Income Taxes Generated by a Leveraged Lease Transaction;
(v) Ref. No. 2008-08: Methods Used to Determine and
Report Fair Value of Securities;
(vi) Ref. No. 2007-21: SOP 97-1: Accounting by Participating
Mortgage Loan Borrowers;
(vii) Ref. No. 2008-12: Clarification of Accounting
for Capital Notes Held as Investments;
(viii) Ref. No. 2002-20: Valuation and Reporting of Residential Interests;
(ix) Ref. No. 2007-34: Use of Audited Tax Basis Financial Statements;
(x) Ref. No. 2007-30: Remove Reference to Health Reserves Guidance Manual;
(xi) Ref. No. 2008-06: Clarification of SSAP No. 63
Regarding Intercompany Pooling Arrangements;
(xii) Ref. No. 2008-03: Discounting of Loss Adjustment
Expense Reserves;
(xiii) Ref. No. 2007-36: Goodwill in a Merged Subsidiary;
(xiv) Ref. No. 2008-17: FSP FAS 142-3, Determination
of the Useful Life of Intangible Assets;
(xv) Ref. No. 2008-14: Measurement of Sufficient Collateralization
for Securities Lending Transactions;
(xvi) Ref. No. 2005-02: Amendment to the Permitted
Practices Notice Requirement; and
(xvii) Ref. No. 2008-19: FAS 162, The Hierarchy of
Generally Accepted Accounting Principles; and
(C) Actuarial Guidelines 43, 44, and 45, and revised
Actuarial Guidelines 34 and 39, issued by the NAIC in calendar year
2008. Actuarial Guideline 43 shall be applied to examinations conducted
as of January 1, 2010 and thereafter, and also shall be used to prepare
all financial statements filed with the department for reporting periods
beginning on or after January 1, 2010.
(2) In addition, the following exceptions and additions are adopted:
(A) Settlement requirements for intercompany transactions
are subject to the accounting treatment in Statement of Statutory
Accounting Principles (SSAP) No. 96, except that amounts owed to the
reporting entity shall be settled by the due date in accordance with
the written agreement and the requirements of §7.204 of this
title (relating to Commissioner's Approval Required). Intercompany
balances shall be settled within 90 days of the period for which the
services are being billed; otherwise such balances shall be nonadmitted.
(B) Retrospective premiums must be billed within 60
days of computation and audit premiums must be billed within 60 days
of the completion of the audit in determining the beginning date from
which the 90 day period is calculated to determine admissibility of
uncollected premium balances under SSAP No. 6.
(C) Electronic machines, constituting a data processing
system or systems and operating systems software used in connection
with the business of an insurance company acquired after December
31, 2000, may be an admitted asset as permitted by Insurance Code §§841.004,
861.255, 862.001, and any other applicable law and shall be amortized
as provided by the Manual. All such property acquired prior to January
1, 2001, may be an admitted asset as permitted by Insurance Code §§841.004,
861.255, 862.001, and any other applicable law, and shall be amortized
in full over a period not to exceed ten years.
(D) Furniture, labor-saving devices, machines, and
all other office equipment may be admitted as an asset as permitted
by the Insurance Code §§841.004, 861.255, 862.001, and any
other applicable law and, for such property acquired after December
31, 2000, depreciated in full over a period not to exceed five years.
All such property acquired prior to January 1, 2001, may be an admitted
asset as permitted by Insurance Code §§841.004, 861.255,
862.001, and any other applicable law, and shall be depreciated in
full over a period not to exceed ten years.
(E) All certificates of deposit, of any maturity, may
be classified as cash and are subject to the accounting treatment
contained in SSAP No. 2, notwithstanding the provisions of SSAP No. 26.
(d) A farm mutual insurance company, statewide mutual
assessment company, local mutual aid association, or mutual burial
association that has less than $6 million in annual direct written
premiums need not comply with the Manual.
(e) In the event a domestic insurer desires to deviate
from the accounting guidance in a Texas statute or any applicable
regulation, the insurer shall file a written request for a permitted
accounting practice. Such filing shall be made with the Senior Associate
Commissioner, Texas Department of Insurance, Mail Code 305-2A, P.O.
Box 149104, Austin, Texas 78714-9104 at least 30 days before filing
the financial statement affected by the deviated accounting practice.
Insurers shall not use deviated accounting practice without the department's
prior approval.
(f) This section shall not be construed to either broaden
or restrict the authority provided under the Insurance Code to insurers,
including health maintenance organizations.
This agency hereby certifies that the adoption has
been reviewed by legal counsel and found to be a valid exercise of
the agency's legal authority.
Filed with the Office of the Secretary of State on July 17, 2009.
TRD-200902926
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: August 6, 2009
Proposal publication date: April 10, 2009
For further information, please call: (512) 463-6327