Episode 274: Tips and Tools for Staying Current with NAIC Statutory Filings

 

Stewart: Welcome to another edition of the InsuranceAUM.com podcast. I'm Stewart Foley, I'll be your host.  Hey, welcome back. It's great to have you. And I mentioned that we just trademarked, "The home of the world's smartest money," and I'm so happy that it was available and that we did that. I really want to pay a lot of respect and admiration to the insurance investment professionals that the skills and talents that you use every day to run money and get competitive rates of return are not widely known, and we're really happy to be able to go down that path.

And so this podcast today is really, really on the money for a select group of our audience, which is the folks that are responsible for the stat reporting. And so the name of the podcast... and this is especially catchy so hang on to your hats. It's called The Four Best Ways to Stay Current on NAIC Statutory Reporting: Tools You Can Use. And we're joined by Scott Kurland, who's the managing director of SS&C Singularity. Scott, welcome. You are a repeat guest. We're thrilled to have you on.

Scott: Glad to be back, and thanks for having me, Stewart.

Stewart: And we're joined by Barbara Arnold. In introducing her second, I want to highlight the fact that Barbara Arnold is the vice president of SS&C Technologies. She is one of the OGs in this business and has been with SS&C since, listen to this date, 1987. And you are really an expert in the NAIC reporting, insurance investment accounting. And not only that, but you have a lot, a lot, of connectivity in this industry and I'm thrilled to have you on Barb. Thanks for taking the time.

Barbara: Well, thanks Stewart. Thanks for having me.

Stewart: My pleasure. And so we've already done this song and dance with Scott before, so we're going to focus on you so we can get to know you a little bit, which is, where did you grow up and what was your first job? Not the fancy one.

Barbara: All right, so I grew up in East Hartford, which is just a few towns away from where the headquarters are for SS&C and Windsor. And my first job, I worked in the newspaper industry. And this was back in the high school days, but I worked for the Hartford Current in their publication office, and I also had a paper route.

Stewart: You are among many of our guests that had a paper route, and that's super interesting. So what did you do in the publishing department at the Hartford Current? For those who might not be familiar, the Hartford Current is the major daily newspaper in the greater Hartford area.

Barbara: I was actually in circulation and in circulation, mostly I listened to customer complaints when they didn't get their paper.

Stewart: I've had one of those jobs.

Barbara: I also signed up new accounts and I happened to be working there at the time that the other local newspaper, the Hartford Times, went out of business. So we were getting so many orders every day for people now to subscribe to the other paper, so it's a really busy time.

Scott: I'm pretty sure Barb got my job when I was fired because I was not able to ride a bike and throw a newspaper accurately at the same time. About my second time on the loop, I think I broke more mailboxes and windows stoops and hit more domestic animals that were around, and so they didn't want me in that role anymore.

Stewart: That's great. All right, so I guess just to kind of kick it off, if you would, Scott, talk a little bit about some of the major trends shaping and impacting NAIC statutory reporting and filing as we look ahead here to 2025. And I think it's fair to say that they've been active, right? There's been a lot to keep track of here.

Scott: Yeah, I think there's a couple of things just to set the stage for the listeners today. There are a number of things that are going on where effectively, the complexity of NAIC statutory filing and the requirements has really grown significantly in the recent years. And it's been presenting new challenges for US insurance companies that are subject to the filing. And I'd say there are four or five key trends and things that are driving that complexity.

The first is there's just been a continued trend in expansion and diversification of investment portfolios into non-traditional assets. So complex investments such as alternatives, partnership investments, syndicated bank loans where insurance companies are stepping in and doing some of that private lending, or public lending where regional commercial banks aren't, and then add to that private and public credit. So you layer all those things in, and there's a lot of nuances and complexities associated with each one of those asset types.

Combine that with the fact that you've also seen insurers move to more of a multi-manager model, where traditionally, if it was just a pure fixed income portfolio, you might have one primary investment manager and there was one set of data classifications and one pricing source to work with and to reconcile. As insurance companies have moved to expand into alternatives and some of the more boutique asset classes, they've also started selecting additional asset managers that have specific expertise or deal flow in certain private credit or private equity type investments.

And that has made the gathering of data and the reconciliation and normalization of data to have so-called ‘one book of truth’ in your accounting package more difficult than ever before. That's number two. The third thing I would say is that the NAIC has driven changes to asset classifications themselves, and that has also impacted how assets receive certain capital treatment with the regulator and how they're reported on schedule. And Barb's going to elaborate on that a little bit more.

The fourth, and I'll call it fourth and fifth challenge, is that many insurance companies are struggling with their own internal challenges associated with hiring and retaining competent accounting staff that are also able to stay abreast of the changing regulatory guidance and filing requirements. So if you don't have that expertise in-house, you don't know maybe what's going to hit you or what you have to be prepared for.

And all of that is under extremely tight time constraints that insurers face today to have very tightly wrapped up monthly closes for their accounting, and then quarterly and annual filing deadlines that they face to both the regulators and to their own constituents, their board members, their investors, and other folks. So you bring all of those things together and it's become more complex. The time requirements are tighter, the internal resources are more scarce, and the expertise required and the nuances to how to get it right are higher than ever. And I would say that all of those things have just made the time and the requirements and the resources to get the NAIC quarterly and annual filing right and on time harder than they've ever been before.

Stewart: Barb, what would you like to add to what Scott covered there?

Barbara: Well, I think the bottom line with this is that with great complexity, you really need to focus on practicality, and that comes down to a couple of key things. What are your workflows for getting information in? And the other thing is, where are you getting the data from? And especially going back to what Scott said, where people are using more outside managers, those sources for your data may be many and varied to get back to the original criteria for what that investment decision was made on and the information you need to do some of the reporting.

Stewart: That's super helpful. So back to you, Barb, what do you think the biggest challenges insurers are facing, and does it matter P&C and life? Are they facing the same challenges or is it different in those two food groups?

Barbara: I think what really matters is, what is the composition of their portfolio? The bigger challenges right now, especially this year with the principal based bonds definition going into effect in this January and starting to roll out in reporting and Q1, if you have a lot of asset backs in your portfolio and they're not just know Fannies, Freddies, or Ginnie Maes, if you have a lot of that, that's where you're going to have a lot bigger decisions in terms of how you're going to categorize them, whether anything needs to be moved from the traditional schedule D long-term fixed income off into the other invested assets category.

So everybody faces that if they have those in their portfolios, but I think underlying it, all the insurers, whether they're big or small, have some disruption this year because of the transition to the principal-based bonds definition, getting those workflows into place, getting the data that they need for both the quarterly and annual filings locked down, secured, and ready to go. So it's a lot for this year.

Scott: Stewart, I would just add to that when you think about the different types of insurers, if you're looking through the lens of a longer term carrier with respect to their liability schedules like a life annuity company or, in some cases, the health companies, the impact of getting it wrong as it pertains to risk-based capital and what it does to their balance sheet, the capital surplus situation, could be more severe the longer you go out in terms of the maturity and duration of those investments versus folks that are generally very liquid in pretty traditional short-term investments may not have quite the same impact if they get it wrong.

Stewart: So back to you Scott. What options do insurers have to tackle this? So how do you outsource? Are you seeing with the increased complexity more insurance companies outsourcing their stat prep and talking to an expert service provider? And if they're going to go that route, what are some of the key questions that folks like that need to be thinking about?

Scott: Yeah, I think that when you think about the degree to which somebody could outsource the process, on one end of the spectrum, an insurer could say, "You know what? I want to outsource everything from the core investment accounting. It sells all the way through to my quarterly and annual filings, and it's to the point where I hit submit and go." The other extreme is the other way, which is somebody could say, "Well, all I would like to do is hire an outsourcing partner to do a final quality control review of the output to make sure that it's complete, all of the schedules are filled out correctly to the best of the ability to look at, and they're in the right format so that the regulator, the NAIC, will accept them as part of the upload." And then there are some middle ground.

For example, you could say, "Well, I'd like you to actually do the statement preparation as well as the quality control review and the filing piece, but not the account." So it really depends on how far insurer wants to take it. And really, some of that's driven by their own capacity in terms of their staff, their resources, complexity of the portfolio, their time constraints along the way. But in any event, I think the key things come back to what Barb had mentioned, which is that starting with your accounting process, you want to make sure you have a streamlined and automated and efficient process for gathering and reconciling the core data. Because if the core data at the heart of it is not right from quarter to quarter, you're going to have anomalies in your reporting, you're going to have questions from regulators and auditors, and nobody wants that, right?

Or you're going to have to go back and change things from a prior period or prior filing and then explain why. So a lot of the controls is around the data and integrity as it pertains to reconciliation data collection ratings that are applied, whether they be third-party rating agencies or SBO designations to the investments, and making sure that all those boxes are checked even before you start the preparation of the schedule packages for the regulator on a quarterly and annual basis. And a outsourcing provider can help with that by having pricing and valuation policies in place, by having really good and efficient reconciliation tools where you can reconcile from multiple investment managers to custodians to your accounting book of record, and get to that one source of truth in the view of the regulators and the insurance company and the entities that will be filing.

Stewart: That's super helpful. Let me ask you a question that maybe... I don't know the answer to this, but let's say that I've got an internal team that I want to cover my core fixed income, but I have complicated private assets that are maybe beyond the team's capabilities or we're struggling with it. Can I bifurcate that? Can I co-source with you so that we're going to cover some of it, and you're going to cover some of it? Does that solution exist as well?

Scott: Yeah, and you used the proper term for that, which is what we also refer to as co-sourcing, where effectively you've farmed out... and again, the same thing. You could take it all the way through from investment accounting to transaction and event notice processing to commitment tracking to performance tracking on one sleeve of assets like partnerships or bank loans or what-have-you, or loans, all the way through to the production of a... let's say a Schedule B or a Schedule BA. That could then be provided to the insurer and they can then incorporate that in their full package filing on a quarterly and annual basis to the regulator. So that is one option if they were comfortable with the core investments or what you call the plain vanilla portfolio.

Stewart: This has been super helpful. I really appreciate it. Barb, just to summarize for our audience, what are a couple of key takeaways that you'd want people to come away with after listening to today's podcast?

Barbara: I think two things. So one thing is to keep an eye on the exposure drafts at the NAIC. They're still tweaking things, not so much for Q1, but for Q4. So we want to make sure that we're taking a look at that and make sure we understand how it impacts us and the companies who have to file. The other thing is that don't wait till the last minute, because there's that practicality right there. If you wait, especially for all of the new types of additional information that they're requiring with the Q4 filings, you want to make sure that you're getting that well in hand over the course of the year and not waiting till the last minute.

Stewart: That's great advice. Very good advice. Scott, how about you?

Scott: Yeah, just selfishly, I would say don't be afraid to ask for help. It doesn't have to be something where you hand the baton over completely. We at SS&C work with hundreds of insurance companies, but we're just the last set of eyeballs reviewing something before it's handed off to the NAIC, so be it. But if you need more help with private assets or with the full accounting all the way through, there are things that we can do to free up internal staff resources and time and remove those constraints while still making sure that the right quality control procedures are in place and that there's the right governance on the process. And so you can ask to work with a partner to help this process along. You're not alone in a vacuum.

Stewart: Super helpful. So just as a reminder to our audience, you can find more information about SS&C Technologies on our members page, which is located in the upper left hamburger menu. Just drop it down and click on members, and you'll see SS&C Technologies's logo where you can see all of the content that they've published, and also contact information for Scott as well. So with that, I want to move it on to the fun part of the program, which is... and I'm going to go to you, Barb, for this. As someone with your tenure in the industry and your position and level of expertise, what advice would you give someone who was an accounting major, for example, coming out of school? With the advent of AI and everything that's going on, what advice would you give a young person today?

Barbara: Even though the technology has changed over time, I don't think the advice changes at all. The advice is really is that you have to learn something. You need to find a niche and become an expert, and then maybe move on to something and become an expert, because that's really going to get you the best rewards in your career is being that go-to person who can not always have the answers, but find the answers, help find the answers, all of those things. So continuing to learn, continuing to use the resources. The internet is a great resource. You have to be careful with the information that you get sometimes, but certainly from any of the regulatory bodies, there's great information and you can learn a lot and dig in to become knowledgeable about all these things. And don't be afraid to do it.

Stewart: Great advice. Okay, here's a fun one for you both. So table for four, lunch or dinner. You can each invite one guest, alive or dead. Scott, I'm going to go to you. Who's your guest for lunch or dinner with Barb?

Scott: Oh, gosh. If it's an immediate dinner this week, I would probably say Bill Belichick, because I just want to know what's going through his head in the move to college. It's just interesting.

Stewart: Yeah, I like that. That's a great answer. How about you, Barb? Now you've got Scott, Bill Belichick, and you. Who you bringing?

Scott: You can't say Tom Brady because that would make a whole different dinner dynamic.

Barbara: Yeah, that would. Never be able to get him right now, but how about Andy Reid from the Kansas City Chiefs?

Stewart: Wow, there you go.

Barbara: I only became a Chiefs fan this past year, and if you want to make a guess about that, yes, I am a Taylor Swift fan.

Stewart: There you go. I love that. That's great. That's so great. I think you've got good company, Barb. I really do. So we've had a great podcast today on Four Best Ways to Stay Current on NAIC Statutory Reporting: Tools You Can Use with Barbara Arnold, vice president, SS&C Technologies, and Scott Kurland, managing director, and I think head of insurance solutions at SS&C Singularity. Thanks to both of you for being on today. We had a great time. Thank you.

Scott: Thank you, Stewart.

Barbara: Thank you.

Stewart: Thanks. If you have ideas for a podcast, please shoot me a note at stewart@insuranceaum.com. Please rate us, like us, and review us on Apple Podcasts, Spotify, or wherever you're listening to your favorite shows. Just as a reminder, we are officially the home of the world's smartest money. My name's Stewart Foley. We'll see you again next time on the insuranceaum.com podcast.