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CA Department of Insurance

Request for Permitted Accounting Practice

To: Domestic Insurers and Interested Parties 

Subject: Request tor Permitted Accounting Practice

Effective January 1, 2005, the NAIC adopted changes to the Preamble of the NAIC Accounting Practices and Procedures Manual (Manual) requiring domiciliary state regulators to provide  five (5) days advance notification to all states in which a company is licensed when considering approval of a request for an accounting practice that departs from the Manual and state prescribed practices. 

The revised Preamble is included as a supplement to this Notice.

To assist the Department in complying with this requirement, each request for a permitted accounting practice must be in writing and received by the Department more than thirty (30) days prior to the proposed effective date.  The request must, at a minimum, include the following information:

  • Proposed effective date (Note: Request must be made at least thirty (30) days prior to the proposed effective date);
  • Nature and detailed description of the permitted accounting practice request (Include appropriate NAIC SAP or statute justification);
  • State whether the permitted accounting practice was granted the previous year;
  • Financial statement filing date in which the requested permitted accounting practice will be reflected, if approved  (Note: Valid for one (1) year only);
  • Financial statement line items that the requested permitted accounting practice will affect and the respective financial impact for each line item identified (Note: The potential impact may be determined by comparing the financial statements prepared in accordance with NAIC SAP and the financial statements incorporating the requested permitted accounting practice.);
  • Effect on capital and surplus of the requested permitted accounting practice on a legal entity basis and on all parent and affiliated U.S. insurance companies, if applicable;
  • List other permitted accounting practices currently in effect, if applicable; and
  • Total financial impact to capital and surplus of the requested permitted accounting practice with all other approved permitted accounting practices currently in effect.

If the requested permitted accounting practice requires prior approval pursuant to the provisions of California Insurance Code Section (CIC) Section 1215.5, please submit the respective CIC Section 1215 application, together with the appropriate filing fee to the

Corporate Affairs Bureau, Legal Division  
California Department of Insurance
45 Fremont Street, 24th Floor
San Francisco, CA  94105.

The request for a permitted accounting practice shall be filed only upon notice/receipt of the Department's approval of the CIC Section 1215 application.

Where to file:

Requests for permitted accounting practices must be made by completing the attached document (see Attachment A .doc) and submitting the completed form to:

Financial Analysis Division, Chief
California Department of Insurance
300 South Spring Street, South Tower
Los Angeles, California 90013

Note:  

  • Additional pages may be provided to supplement the responses provided in Attachment A .doc.
  • Questions regarding this Notice should be directed to the Financial Analysis Division at (213) 346-6353 or (213) 346-6419.

Accounting Practices and Procedures Manual

Preamble 

IX. Permitted Accounting Practices

  1. In instances where the domiciliary state regulator is considering approval of a request for an accounting practice that departs from the NAIC Accounting Practices and Procedures Manual (Manual) and state prescribed accounting practices, the domiciliary regulator must provide Notice as defined in paragraphs 55 through 57.

  2. No domiciliary state regulatory authority shall grant an approval to use an accounting practice, as described in paragraph 54, unless it provides Notice at least 5 days in advance of such approval.

  3. This Notice must disclose the following information regarding the requested accounting practice request to all other states in which the insurer is licensed prior to the financial statement filing date:

    1. The nature and a clear description of the permitted accounting practice request;

    2. The quantitative effect of the permitted accounting practice request with all other approved permitted accounting practices currently in effect as disclosed in Appendix A-205: Illustrative Disclosure of Differences Between NAIC Statutory Accounting Practices and Procedures and Accounting Practices Prescribed or Permitted by the State of Domicile for that insurer in the domiciliary state;

    3. The effect of the requested permitted accounting practice on a legal entity basis and on all parent and affiliated United States insurance companies, if applicable; an

    4. Identify any potential effects on and quantify the potential impact to each financial statement line item affected by the request. The potential impact may be determined by comparing the financial statements prepared in accordance with NAIC SAP and the financial statements incorporating the requested permitted accounting practice.

  4. The granting of approval for an accounting practice request by the domiciliary state regulator does not preempt or in any way limit any individual state's legislative and regulatory authority.

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