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Simplification of Extra-Contractual Obligations Proposal Meets Approval of NAMIC

INDIANAPOLIS (April 6, 2006)—The decision to scale back a proposal for insurers to detail extra-contractual obligations is a “reasonable resolution of an unneeded proposal,” a spokesperson for the National Association of Mutual Insurance Companies (NAMIC) said today.

William Boyd, NAMIC’s financial regulation manager explained that alterations of systems and procedures would be required to deal with new parts of the NAIC Annual Statement’s Schedule P to deal with data on extra-contractual obligations, known as ECOs. “What has been done will now go back to the Blanks Working Group and should satisfy those in that committee that this long pending matter should now be closed.”

NAMIC joined others in the property-casualty industry in opposition to the proposal.

ECOs are claims paid or incurred that are involved in litigation or other process to settle disputes with policyholders or others. The original proposal would potentially have required new reserve-development triangles for extra-contractual obligations in each line of business, a matter which presents data-systems problems to most property-casualty insurers.

Meeting by teleconference on Tuesday, regulators on the NAIC’s Statutory Accounting Principles Working Group and Casualty Actuarial Task Force voted to require only the following for disclosure of ECOs:

  • Total paid ECO claims for lawsuits.
  • The total number of claims involved.

That disclosure would occur as a note to financial statements, subject to its materiality as an aggregate, and would not be entered in Schedule P, which is the Annual Statement’s analysis of losses and loss expenses. Schedule P is already a major element in most companies’ NAIC Annual Statement.

The proposal abandoned Tuesday was referred to the joint committees by the NAIC’s Blanks Working Group, which determines form and content of the NAIC Annual Statement. It had originated in 2004 and had bounced back and forth among NAIC committees concerned with solvency.

Although the effective date for the disclosure is still to be set, it might be expected to apply for years ended Dec. 31, 2007.

For further information, contact
William Boyd
(317) 875-5250 Tel
(317) 879-8408 Fax

Rick Nelson, APR, CAE
(317) 875-5250 Tel
(317) 879-8408 Fax

Posted: Thursday, April 06, 2006 12:00:00 AM. Modified: Thursday, April 06, 2006 1:40:06 PM.

317.875.5250 - Indianapolis  |  202.628.1558 - Washington, D.C.

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