To: Chief Financial Officer
Date: December 29, 2011
Assembly Bill 2002 will eliminate the minimum reserve requirement for certain liability lines of business that was previously included as part of California Insurance Code (CIC) Section 11558. For the 2011 Annual Statement, insurers writing certain liability including automobile bodily injury business in California are required to book reserves in accordance with CIC Section 923.5 and the NAIC's Statement of Statutory Accounting Principles (SSAP) No. 55.
If your company intends not to book the additional reserves required by CIC Section 11558, it should notify the California Department of Insurance (CDI) of what additional reserve would have been required by CIC Section 11558 as of December 31, 2011. The insurer should notify the CDI, Financial Surveillance Branch (in Los Angeles) in writing as soon as possible prior to filing its 2011 Annual Statement. The written notification to CDI should also indicate the proposed disclosure footnote that must be included in the 2011 Annual Statement, Notes to Financial Statements.
The following is a sample disclosure which is to be included in the 2011 Notes to the Financial Statements regarding the revisions of CIC Section 11558:
The CDI has certain statutory prescribed accounting practices that differ from those contained in the National Association of Insurance Commissioner's Statutory Accounting Principles ("NAIC SAP"), specifically the liability for the excess of statutory over statement (Schedule P Penalty). Pursuant to CIC Section 11558, the minimum reserve requirement prescribed by the commissioner in regulation promulgated pursuant to CIC Section 923.5 for outstanding losses and loss expenses for each of the most recent three years for coverages included in the lines of business described in the annual statements as liability other than automobile injury and automobile bodily injury shall be not less than 60% of the earned premiums during each year less the amount already paid for losses and expenses incidental thereto incurred during each such year. The commissioner may prescribe the manner and form of the reporting pertinent information concerning the reserves provided for in this section.
The Schedule P Penalty is to be reported on Page 3, Liabilities, Surplus And Other Funds, line 2301 (Details of Write-ins) and on Page 4, Statement of Income, line 3701 (Details of Write-ins) of the Annual Statement. In the NAIC SAP, the Schedule P Penalty formerly on Page 3, line 15 of the Annual Statement was eliminated under SSAP No. 65 as a part of the Codification.
The Company is not reporting the applicable excess of statutory over statement reserves (Schedule P Penalty) as of December 31, 2011 and as of December 31, 2010 in its filed 2011 Annual Statement, which when calculated in compliance with CIC Section 11558 would be $XXX and $XXX, respectively.
If you have any questions, you may contact Chief, Financial Analysis Division at (213) 346-6385.
§ 11558 Minimum reserve requirements
History:
- Amended by SB 316; effective 01-01-2008
The minimum reserve requirements prescribed by the commissioner in regulations promulgated pursuant to Section 923.5 for outstanding losses and loss expenses for each of the most recent three years for coverages included in the lines of business described in the annual statement as liability other than automobile bodily injury, and for automobile liability bodily injury, shall be not less than 60 percent of earned premiums during each year less the amount already paid for losses and expenses incidental thereto incurred during each such year.
The commissioner may prescribe the manner and form of reporting pertinent information concerning the reserves provided for in this section.
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