Statutory Accounting Principles Working Web viewThe lack of clarity in the existing statutory accounting language for title insurance loss and loss adjustment reserves may result in

Attachment ARef #2012-33

Statutory Accounting Principles Working GroupMaintenance Agenda Submission Form

Form A

Issue: Title Insurance Loss Reserves

Check (applicable entity):P/C Life Health

Modification of existing SSAPNew Issue or SSAP

Description of Issue: The lack of clarity in the existing statutory accounting language for title insurance loss and loss adjustment reserves may result in situations where the insurer may be required to book in aggregate (known claims reserves, statutory premium reserve, and the supplemental reserve) more than is estimated to pay for all anticipated claims (and associated loss adjustment expenses).

There is currently some confusion regarding the existing guidance for reserves for the Known Claims Reserve within SSAP No. 57–Title Insurance (SSAP No. 57). There is also a larger, overall conceptual issue with the methodology that establishes the total reserves that title insurers are required to book as a liability. The liability page for the Annual Statement for title insurers requires the following reserves;

Line 1 - Known Claims Reserve, Line 2 - Statutory Premium Reserve (SPR) andLine 4- Supplemental Reserve.

Schedule P for Title Insurers requires a true actuarially calculated Incurred but Not Reported and Loss Adjusting Expense (IBNR/LAE), but pursuant to Part 2B of the Annual Statement, the IBNR/LAE reserves are brought forward from Schedule P and compared to the statutorily required SPR and the known claims reserve.

If the SPR and the known claims reserve (including and loss adjusting expenses) is less than the sum of known claims, IBNR/ LAE reserve, then a Supplemental Reserve must be posted on Line 4. The SPR essentially establishes the minimum IBNR/LAE reserve, but it can never be less that the actuarially calculated IBNR/LAE reserve.

However, if the SPR and the known claims reserve (including and loss adjusting expenses) are in excess of the combined known claims reserve and the IBNR/ LAE reserves, no supplemental reserve would be required.

A reading of the statutory guidance in SSAP No. 57 and Appendix A-628–Title Insurance (A-628) indicates that the Known Claims Reserve (Line 1), on its own accord, is supposed to be sufficient enough to cover "all unpaid losses, claims and allocated loss adjustment expenses arising under title insurance policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and for which the title insurer may be liable, and for which the insurer has received notice by or on behalf of the insured, holder of a guarantee or escrow or security depositor".

Issue Paper No. 57 seems to bolster the intent of this language by adding the sentence "The known claims reserve also includes "bulk" reserves, if any- a provision for subsequent development on known claims"; Issue Paper No. 57, paragraph 22 in defining Known Claim Reserve states, “The known claims reserve also includes “bulk” reserves, if any –a provision for subsequent development on known claims”, however, this language is quoting precodification statutory guidance and is not specifically included in SSAP No. 57 or A-628. The Annual Statement Instructions also include bulk reserves as part of the Known Claims Reserves.

© 2013 National Association of Insurance Commissioners 1


For P&C insurers the bulk reserve provision for adverse development on known claims is typically carried as an implicit component of IBNR reserves pursuant to SSAP No. 55.

Many title insurers may have an SPR that exceeds, by a significant amount, the IBNR/LAE reserves. Current guidance is category specific and does not allow title insurers to offset the deficiency (adverse development) in the Line 1 - Known Claims Reserve. Therefore material examination adjustments increasing the Line 1 - Known Claims Reserve based on actuarial review and adverse development, have a direct impact on surplus while at the same time the SPR may be significantly larger than the IBNR/ LAE reserves. The two categories may result in reserves that may be in excess of what is actuarially reasonable. We believe that while title insurers should post an adequate Known Claims Reserve, it should not, when combined with the SPR, produce excessive liabilities.

Existing Authoritative Literature:

SSAP No. 57:

8. A liability shall be established for all known unpaid claims and loss adjustment expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding charge to income.

9. Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of Appendix A-628.

10. A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR/UPR, and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses or the amount determined in accordance with the reserve section of Appendix A-628.

11. The actuarially determined liability for the sum of known claims reserve required in paragraph 8 and the IBNR claims and loss adjustment expenses required in paragraph 10 of this statement shall be determined consistently with the guidance detailed in SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses (“SSAP No. 55) and consistent with paragraph 13 of this statement (emphasis added).

SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses (“SSAP No. 55):

5. The following are types of future costs relating to property and casualty contracts, as defined in SSAP No. 50, which shall be considered in determining the liabilities for unpaid losses and loss adjustment expenses:

a. Reported Losses: Expected payments for losses relating to insured events that have occurred and have been reported to, but not paid by, the reporting entity as of the statement date;

b. Incurred But Not Reported Losses (IBNR): Expected payments for losses relating to insured events that have occurred but have not been reported to the reporting entity as of the statement date. As a practical matter, IBNR may include losses that have been reported to the reporting entity but have not yet been entered to the claims system or bulk provisions. Bulk provisions are reserves included with other IBNR reserves to reflect deficiencies in known case reserves; …

Appendix A-628:17. A title insurer shall establish and maintain:



a. A known claim reserve in an amount estimated to be sufficient to cover all unpaid losses, claims and allocated loss adjustment expenses arising under title insurance policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and all unpaid losses, claims and allocated loss adjustment expenses for which the title insurer may be liable, and for which the insurer has received notice by or on behalf of the insured, holder of a guarantee or escrow or security depositor.

b. A Statutory or Unearned Premium Reserve consisting of:i. The amount of the statutory or unearned premium or reinsurance reserve legally held at December 31, 2000. The balance of this reserve shall be released in accordance with the state laws in effect prior to January 1, 2001; and

ii.. For those title insurance policies and guarantees written after January 1, 2001, reserves shall be established that are equal to the sum of the following items, as set forth in the title insurer's most recent annual statement:

(a) For each title insurance policy on a single risk written or assumed, an amount, as determined by the insurer's state of domicile per $1,000 of net retained liability for policies under $500,000 and for policies of $500,000 or greater, or any other reasonable method as required by the insurer's state of domicile; and(b) An amount as determined by the insurer's state of domicile for the escrow, settlement and closing fees collected in contemplation of the issuance of title insurance policies or guarantees.

iii. The aggregate of the amounts set aside in this reserve in any calendar year pursuant to subparagraph b.ii. shall be released from the reserve and restored to net profits over a period of twenty (20) years pursuant to the following formula: thirty-five percent (35%) of the aggregate sum on July 1 of the year next succeeding the year of addition; fifteen percent (15%) of the aggregate sum on July 1 of each of the succeeding two (2) years; ten percent (10%) of the aggregate sum on July 1 of the next succeeding year; three percent (3%) of the aggregate sum on July 1 of each of the next three (3) succeeding years; two percent (2%) of the aggregate sum on July 1 of each of the next three (3) succeeding years; and one percent (1%) of the aggregate sum on July 1 of each of the next succeeding ten (10) years.

iv. The insurer shall calculate retroactive adjusted statutory or unearned premium reserve on an aggregate basis at January 1, 2001. The adjusted aggregate reserve shall be calculated as if Subsections b. ii. had been in effect for all years beginning twenty (20) years prior to January 1, 2001. If the adjusted aggregate reserve exceeds the aggregate amount set aside for statutory or unearned premiums in the insurer's December 31, 2000 annual statement, the insurer shall increase its statutory or unearned premium reserve by an amount equal to one-sixth of that excess in each of the succeeding six years, commencing with the 2001 calendar year.

v. The aggregate of the amounts set aside in this reserve in any calendar year as adjustments to the insurer's statutory or unearned premium reserve pursuant to Subsection b. iv. shall be released from the reserve and restored to net profits, or equity if the additions required by subparagraph b. vi. of this section reduced equity directly, over a period not exceeding ten (10) years pursuant to the following table:Year of Addition Release

Year 2001 Equally over 10 yearsYear 2002 Equally over 9 yearsYear 2003 Equally over 8 yearsYear 2004 Equally over 7 yearsYear 2005 Equally over 6 years



Year 2006 Equally over 5 years

c. A supplemental reserve shall be established consisting of any other reserves necessary, when taken in combination with the reserves required by Subsections a. and b. of this paragraph, to cover the company's liabilities with respect to all losses, claims and loss adjustment expenses.

The 2011 Schedule P Instructions for Title Insurance clearly group “bulk” reserves with the Known Claim Reserves and within Part 2 provide separately for “bulk” versus IBNR:

Part 1: The known claim reserve includes case basis reserves and “bulk” reserves. “Bulk” reserves are a provision for subsequent development on known claims” and “IBNR reserves are a provision for unreported or unknown title insurance claims on all policies issued by the company as of the accounting date.

Part 2C: Part 2C shows bulk reserves on known claims by year the policy was written for claims that are open as of December 31 of each year shown in Columns 1 to 10.

Part 2D: Part 2D shows Incurred But Not Reported (IBNR) reserves as of December 31 of each year shown in Columns 1 to 10. IBNR reserves make a provision for claims not yet reported to the company but can also include other amounts needed to result in an adequate total reserve.

Part 3C: Part 3C shows bulk reserves on known claims by year the claim was reported for claims that are open as of December 31 of each year shown in Columns 1 to 10. Bulk reserves provide for subsequent development on known claims and do not make a provision for claims not yet reported to the company. A company is not required to carry bulk reserves.

Issue Paper 57, paragraph 22 (page IP 57-12) defines IBNR and Known Claims Reserve, distinguishing between them based on whether the insurer has (known), or has not (IBNR) received notice. Note: Issue Papers are not authoritative guidance, but they do provide relevant background materials. In this case, paragraph 22 of the Issue Paper is quoting pre-codification statutory accounting guidance adopted on 10-1-1996:

Incurred but Not Reported Reserve The incurred but not reported reserve (“IBNR”) is an amount estimated to cover all unpaid losses, claims and allocated loss adjustment expenses arising under title insurance policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and all unpaid losses, claims and allocated loss adjustment expenses for which the title insurer may be liable and for which the insurer has not received notice by or on behalf of the insured, holder of a guarantee or escrow or security depositor. Title insurance companies are not required to give recognition to IBNR losses in statutory reporting unless a “supplemental reserve” is required. See the definition of Supplemental Reserve below.

Known Claims Reserve The known claims reserve (referred to as the “loss reserve for undetermined title and other losses of which notice has been received”) is the amount estimated to be sufficient to cover all unpaid losses, claims and allocated loss adjustment expenses arising under title insurance policies, guaranteed certificates of title, guaranteed searches and guaranteed abstracts of title, and all unpaid losses, claims and allocated loss adjustment expenses for which the title insurer may be liable and for which the insurer has received notice by or on behalf of the insured, holder of a guarantee or escrow or security depositor. The known claims reserve also includes “bulk” reserves, if any – a provision for subsequent development on known claims.

Issue Paper 57, paragraph 22, (on page IP 57-14): An Actuarial Opinion is required:

Effective January 1, 1996, the Schedule “P” reserves must be supported by an actuarial opinion from a qualified actuary who is a member in good standing of the American Academy of Actuaries, setting forth an opinion as to the adequacy of all loss reserves (known claims reserve, including bulk reserves (if any), + IBNR reserve + LAE reserve).



23. The Title Insurers Model Act was adopted by the Title Insurance Working Group of the Special Insurance Issues (E) Committee on December 4, 1995, and was adopted by the full membership of the NAIC at the March 1996 Plenary Session (only the pertinent excerpts are included below

The discussion section of the Issue Paper No. 57 notes (bolding added from emphasis). DISCUSSION17. The P & C Accounting Practices and Procedures Manual states that title insurance premiums are fully earned on the date of policy issuance; however, title insurance companies are required to establish and maintain an unearned premium or reinsurance reserve. The primary objective of the SPR/UPR is to maintain at all times a reserve amount which is sufficient to purchase reinsurance for the IBNR claims and related loss adjustment expenses. Consistent with this objective, the statutory principles in paragraph 6 of this issue paper retain current statutory guidance, which requires that changes in the amount of the SPR/UPR be reflected as an adjustment to premium revenue. Additionally, the supplemental reserve required in paragraph 7 of this issue paper is analogous to the concept of a premium deficiency reserve as discussed in Issue Paper No. 53—Property and Casualty Contracts - Premiums (Issue Paper No. 53). Consistent with Issue Paper No. 53, anticipated investment income may be used as a factor in the supplemental reserve calculation.

18. The conclusions reached in this issue paper are consistent with current statutory guidance except as follows with the exception that this issue paper requires consideration of IBNR claims and related loss adjustment expenses in evaluating the sufficiency of the SPR/UPR in order to conform with the Title Insurers Model Act. The Model Act requires the reporting entity's state of domicile to determine the appropriate unearned premium reserve to be set aside. This issue paper also requires the unearned premium reserve to be determined by the reporting entity's state of domicile. The determination by the state of domicile of this reserve is considered necessary given the nature of this product. This issue paper also requires that the liability for known claims reserves be calculated in accordance with Issue Paper No. 55, except that anticipated salvage and subrogation shall not be deducted from the liability for unpaid claims. Issue Paper No. 55 permits, but does not require, anticipated salvage and subrogation recoverables to be deducted from the liability for unpaid claims; whereas current statutory guidance for title insurers does not permit case basis loss and loss adjustment expense reserves to be reduced for anticipated salvage and subrogation.

19. This issue paper modifies current statutory accounting for title plant to require the evaluation and write-off of impairment in value. This is consistent with Issue Paper No. 5. This issue paper adopts FAS 61, modified for carrying value restrictions, as amended by paragraph 29 of FASB Statement No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Restrictions on the total carrying value of an investment in a title plant or plants have been set consistent with current statutory accounting outlined in the Title Insurers Model Act. FAS 121 is addressed in Issue Paper No. 40—Real Estate Investments.

20. The conclusions above reject FAS 60; however, it is considered appropriate to use the factors to be considered in the determination of the ultimate cost of settling claims included in FAS 60 when establishing the reserves in accordance with paragraphs 5 and 7 of this issue paper. The concepts adopted above are consistent with GAAP literature except that GAAP requires immediate revenue recognition for title insurance contracts and the accrual of claims costs at the time title insurance premiums are recognized as revenue; whereas this issue paper requires that revenues be recognized consistent with the concepts discussed in paragraph 16.

Drafting Notes/Comments- Segregated funds held for others (i.e., escrow funds) will be addressed in Issue Paper No. 77

—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures.- Review of state statutes of not less than 38 states indicates the use of a SPR/UPR, we

are not aware of any states without such a requirement.



Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): This is related to a referral received form the Financial Analysis Working Group.

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

Sponsor Recommendation:The sponsor requests that the Statutory Accounting Principles Working Group consider this issue to incorporate guidance to clarify that title insurance loss and loss adjustment reserves resulting in situations where the reporting entity may be required to book in aggregate more than is estimated to pay for all anticipated claims, may adjust the reserves.

Recommending Party:California Department of Insurance / Nebraska Department of InsuranceAl Bottalico, Deputy Insurance Commissioner, Financial Surveillance300 South Spring Street, Los Angeles, California 90013(213) 346-6000

SSAP No. 57:

[8.] A liability shall be established for all known unpaid claims and loss adjustment expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding charge to income. A bulk reserve is not required to be used by the insurer as long as the total of the known claims reserve, SPR/UPR, and the supplemental reserve is not less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses, taking into account the projected development of those reserves.

8.[9.] Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of Appendix A-628.

[10.] A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR/UPR, and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses or the amount determined in accordance with the reserve section of Appendix A-628.

9.[11.] The actuarially determined liability for the sum of known claims reserve required in paragraph 8 and the IBNR claims and loss adjustment expenses required in paragraph 10 of this statement shall be determined consistently with the guidance detailed in SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses (“SSAP No. 55) and consistent with paragraph 13 of this statement (emphasis added).

Staff Recommendations:It would be unusual to remove references to an NAIC model law. However, this is not widely adopted model law. The model law A-628 and paragraph 10 of SSAP No. 57 appropriately reviews the sufficiency of the reserves in total.

However, the current guidance also becomes more granular and speaks about only Line 1, the Known Claims Reserve which has to stand on its own merits based on current guidance. The issue is whether KCR should contain a “bulk reserve.” If you interpret current guidance as that the KCR is supposed to be a sufficient reserve to pay off all known claims as of a financial statement date and you end up evaluating just line 1 you can end up reporting shortages in Line 1, due to development, while at the same time the SPR may be much



higher than the IBNR. This is how regulators may be requiring excessive reserves by indicating that Line 1 was materially short and requiring additional reserves for Line 1 and not recognizing or giving any credit to the fact that the SPR may be much higher than the IBNR. By booking an examination adjustment to Line 1, surplus is reduced while not giving any credit for the excess SPR.

Based on adverse development, if line 1 (KCR) is found to have been deficient it is measured independently rather than measuring the totals as stated above. If a title insurer’s bulk reserve, including a component for adverse development, was included in its IBNR then comparing totals would not necessarily indicate a shortage in the known claims reserve because the overall actuarial reserve was sufficient (KCR plus IBNR). However, if that bulk reserve that is part of IBNR is ignored when evaluating only Line 1, because of current guidance, then it may lead to regulators concluding that Line 1 was deficient and booking an adjustment to Line 1, while if you looked at the totals, no adjustment would have been necessary.

Staff recommends the Working Group expose the proposed changes on this issue to facilitate discussion. In addition, the Title Insurance Financial Reporting Issues Working Group will be notified of the exposure.

Staff Review Completed by:Robin Marcotte and Linda Hunsucker–October 31, 2012NAIC staff

Status:On November 29, 2012, the Statutory Accounting Principles Working Group moved this item to the nonsubstantive active listing and exposed nonsubstantive revisions to clarify title insurance loss and loss adjustment reserves and to eliminate confusion between SSAP No. 57—Title Insurance and Appendix A-628, Title Insurance.

The March 2013 comments from the Missouri Department of Insurance recommended modifying the exposed language. These proposed additional changes will be discussed at the Spring National Meeting as follows:

8. A liability shall be established for all known unpaid claims and allocated loss adjustment expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding charge to income. The known claim reserve consists of case basis reserves and bulk reserves, if any. Bulk reserves provide for subsequent development on case basis reserves. A bulk reserve on known claims is permitted but is not required by statutory accounting and reporting practices. A negative bulk reserve is not permitted.

Missouri Comment on paragraph 8: This clarifies the role of the bulk known claim reserve, required in some states but not others. In my opinion, this language does not conflict with any state law. (See the accompanying summary of relevant state laws.)

9. Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of Appendix A-628.

Missouri Comment on paragraph 9: A628 is an excerpt from the Title Insurers Model Act of 1996, which is not widely adopted. Because of that, A628 creates a conflict between SSAP 57 and specific state laws. As a model law, A628 is intended to replace existing law and not to clarify accounting issues.



10. A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR/UPR, and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses or the amount determined in accordance with the reserve section of Appendix A-628.

Staff Recommendation March 2013

Staff notes that deleting references to the Model law in Appendix A-628 is an unusual step. However, as noted above, the model is not widely passed. Missouri comments noted that many state laws are actually more conservative than A-628. It should be noted that there will be variations for Statutory Premium Reserve contributions and takedowns by state under this approach. The proposed language below will make the Annual Statement test with its requirements for determining the need for a Supplemental Reserve the Accounting Practices and Procedures Manual baseline standard. Given the state variations, on the SPR currently and under this approach, the, the Working Group should also solicit comments regarding reporting entities’ continued ability to complete the annual statement Note 1 on prescribed and permitted differences required by SSAP No. 1—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures, paragraph 7d and Appendix A-205. Staff recommends re-exposing the above changes, with the following modifications shown as shaded and tracked text and requesting comments on the ability to comply with Annual Statement Note 1.

Paragraph 8- Add reference to the Annual Statement exhibit, which details known claims reserve components. (The Exhibit and Schedule P, Part 1 are shown in attachment A for reference in this form A).

Paragraph 9 Change reference to Appendix A-628 with regard to how the Statutory Premium Reserve is calculated to in accordance with state law. The AP&P Manual needs to maintain one reference so that reporting entities can accurately complete annual statement Note 1 from a consistent measurement basis. Staff does have concerns regarding measurement consistency with this change, but hopes that the changes to paragraph 10 help with this issue.

Paragraph 10 – Maintain the last sentence that Missouri recommended deleting as the sentence provides additional detail regarding how the supplemental reserve is determined. In addition, add reference to the Annual Statement exhibit, which details how to determine the supplemental claims reserve. (This Exhibit and Schedule P, Part 1 are shown in attachment A for reference in this form A).

8. A liability shall be established for all known unpaid claims and allocated loss adjustment expenses (known claims reserve), consistent wi th the reserve section of Appendix A-628 with a corresponding charge to income. The known c laim reserve is further detailed in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. The known claim reserve may also include bulk reserves, if any. Bulk reserves provide for subsequent development on case basis reserves. A bulk reserve on known claims may be required by state law, but bulk reserves are not explicitly required by statutory accounting and reporting practices. A negative bulk reserve is not permitted.

9. Premium revenue shall be deferred to the extent necessary to maintain a Statutory or Unearned Premium Reserve (SPR or UPR) determined in accordance with the reserve section of Appendix A-628state law.

10. A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve,



SPR/ (or UPR), and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, a n d loss adjustment expenses. This calculation, which determines the need for the required supplemental reserve liability is further detailed in the Title A nnual S tatement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. or the amount determined in accordance wi th the reserve section of Appendix A-628.

On April 6, 2013, the Statutory Accounting Principles (E) Working Group exposed the below changes to SSAP No. 57 with an April 26 comment deadline. The revisions reflect changes from the original exposure to incorporate the comments from Missouri, as modified in the updated staff recommendation and the deletion of the word explicitly from paragraph 8 in the staff modifications. Given the state variations, on the SPR currently and under this approach, the Working Group is also soliciting comments regarding reporting entities’ continued ability to complete the annual statement Note 1 on prescribed and permitted differences required by SSAP No. 1—Disclosure of Accounting Policies, Risks & Uncertainties, and Other Disclosures , paragraph 7d and Appendix A-205.

[8.] A liability shall be established for all known unpaid claims and loss adjustment expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding charge to income. The known claim reserve is further detailed in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. The known claim reserve may also include bulk reserves, if any. Bulk reserves provide for subsequent development on case basis reserves. A bulk reserve on known claims may be required by state law, but bulk reserves are not required by statutory accounting and reporting practices. A negative bulk reserve is not permitted.


[9.] A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to all known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR /or UPR, and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses. This calculation, which determines the need for the required supplemental reserve liability is further detailed in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. or the amount determined in accordance with the reserve section of Appendix A-628.



On May 15, 2013, the Statutory Accounting Principles (E) Working Group modified paragraph 8 of the exposed language as highlighted below. The Working Group requested comments on this topic from the Title Financial Reporting Working Group by August 2 and requested that the states, which provided comments on this topic, to work with staff to review the proposal for any additional recommendations.

[8.] A liability shall be established for all known unpaid claims and loss adjustment expenses (known claims reserve), consistent with the reserve section of Appendix A-628 with a corresponding charge to income. The known claim reserve is further detailed in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. The known claim reserve may also include bulk reserves, if any. Bulk reserves provide for subsequent development on case basis reserves. A bulk reserve on known claims may be required by state law, but bulk reserves are not required by statutory accounting and reporting practices. The Known Claims Reserve should be the estimated costs to settle reported claims based upon the most current information available to the company as of the balance sheet date . This amount cannot be less than the aggregate of the individual case reserves. A negative bulk reserve is not permitted.


[9.] A supplemental reserve shall be established consisting of any other reserves necessary which, when taken in combination with the reserves required by paragraphs 8 and 9 of this statement, will be sufficient to cover the company’s liabilities with respect to all known claims, IBNR claims, and loss adjustment expenses. The total of the known claims reserve, SPR /or UPR, and the supplemental reserve shall not be less than the actuarially determined liability for the sum of known claims, IBNR claims, and loss adjustment expenses. This calculation, which determines the need for the required supplemental reserve liability is further detailed in the Title Annual Statement Operations and Investment Exhibit on Unpaid Losses and Loss Adjustment Expenses. or the amount determined in accordance with the reserve section of Appendix A-628.



OPERATIONS AND INVESTMENT EXHIBITPART 2B – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

1 Agency Operations 4 5

DirectOperations

2Non-Affiliated

AgencyOperations

3AffiliatedAgency

Operations

TotalCurrent

Year(Cols. 1+2+3)

TotalPriorYear

1. Loss and allocated LAE reserve for title and other losses of which notice has beenreceived:1.1 Direct (Schedule P, Part 1, Line 12, Col. 17)1.2 Reinsurance assumed (Schedule P, Part 1, Line 12, Col. 18)

2. Deduct reinsurance recoverable from authorized and unauthorized companies(Schedule P, Part 1, Line 12, Col. 19)

3. Known claims reserve net of reinsurance (Line 1.1 plus Line 1.2 minus Line 2)

4. Incurred But Not Reported:4.1 Direct (Schedule P, Part 1, Line 12, Col. 20)4.2 Reinsurance assumed (Schedule P, Part 1, Line 12, Col. 21)4.3 Reinsurance ceded (Schedule P, Part 1, Line 12, Col. 22)4.4 Net incurred but not reported (Line 4.1 plus Line 4.2 minus Line 4.3)

5. Unallocated LAE reserve (Schedule P, Part 1, Line 12, Col. 23)

6. Less discount for time value of money, if allowed (Schedule P, Part 1, Line 12,Col. 33) XXX XXX XXX

7. Total Schedule P reserves (Lines 3 + 4.4 + 5 - 6) (Schedule P, Part 1, Line 12,Col. 34)

XXX XXX XXX

8. Statutory premium reserve at year end (Part 1B, Line 2.6) XXX XXX XXX

9. Aggregate of other reserves required by law (Page 3, Line 3) XXX XXX XXX10. Supplemental reserve (a) (Lines 7 - (3 + 8 + 9) XXX XXX XXX

(a) If the sum of Lines 3 +8 +9 is greater than Line 7, place a "0" in this Line.


Attachment 6Ref #2012-33

SCHEDULE P – PART 1 – SUMMARY($000 OMITTED)

Years in WhichPolicies

Were Written

1 Premiums Written and Other Income Loss and Allocated Loss Adjustment Expenses PaymentsAmount

ofInsuranceWritten in Millions

2

DirectPremium

3

AssumedPremium

4

OtherIncome

5

CededPremium

6

Net(Cols.

2+3+4–5)

Loss Payments Allocated LAE Payments7

Direct

8

Assumed

9

Ceded

10

Direct

11

Assumed

12

Ceded1. Prior2. 20033. 20044. 20055. 20066. 20077. 20088. 20099. 2010

10. 201111. 2012

XXX

12. Totals XXX

13

Salvageand

Subrogation Received

14

UnallocatedLoss Expense

Payments

15Total NetLoss and

Expense Paid(Cols.

7+8+10+11-9-12+14)

16

Number ofClaims

Reported(Direct)

Loss and Allocated LossAdjustment Expenses Unpaid

23

Known Claim Reserves IBNR Reserves17

Direct

18

Assumed

19

Ceded

20

Direct

21

Assumed

22

Ceded

UnallocatedLoss Expense

Unpaid1. Prior2. 20033. 20044. 20055. 20066. 20077. 20088. 20099. 2010

10. 201111. 2012

12. Total XXXXXX xxxxxxxxx xxxxxxxxx xxxxxxxxx

24 25 Losses and Allocated Loss Expenses Incurred Loss and LAE Ratio 32 33 34Total NetLoss and

LAEUnpaid(Cols.

17+18+20+21-19-22+23)

Numberof

ClaimsOutstanding

(Direct)

26

Direct (Cols.7+10+17+20)

27

Assumed(Cols.

8+11+18+21)

28

Ceded (Cols.9+12+19+22)

29

Net

30

Direct Basis([Cols.

14+23+26]/Col 2)

31

Net Basis([Cols.

14+23+29]/[Cols. 6–4])

Net Loss &LAE Per$1000 ofCoverage

([Cols.29+14+23]/

Col. 1)

DiscountFor TimeValue ofMoney

NetReserves

AfterDiscount

(Cols. 24-33)

1. Prior2. 20033. 20044. 20055. 20066. 20077. 20088. 20099. 2010

10. 201111. 2012

XXX

12. Totals XXX XXX XXX xxxxxxxx xxxxxxxxx


Attachment 6Ref #2012-33

/tt/file_convert/5a702af47f8b9ab6538bb274/document.docx


Statutory Accounting Principles Working Web viewThe lack of clarity in the existing statutory accounting language for title insurance loss and loss adjustment reserves may result in

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