Training on Mortality Experience Data Reporting

Company Training on Mortality Experience Data Reporting Pat Allison, FSA, MAAA Scott O Neal, FSA, MAAA 7/31/19 1

Agenda 1. VM-50 and VM-51 Overview 2. VM-51 Statistical Plan for Mortality 3. NAIC Data Review Process 4. Preparing for the Data Submission 5. Data Collection Timeline 6. NAIC Support 7/31/19 2

VM-50 and VM-51 Overview 7/31/19 3

Overview of VM-50: Experience Reporting Requirements Purpose: To define the requirements for submission and analysis of company data Includes consideration of: The experience reporting process Roles of the relevant parties Intended use of and access to the data Process to protect the confidentiality of the data Notes that experience data will be collected based on statistical plans defined in VM-51, and that statistical plans will be added to VM-51 when they are ready to be implemented. 7/31/19 4

VM-50 Section 1.B: PBR and the Need for Experience Data Allows state regulators and auditors to perform reasonableness checks on company assumptions Independent check on accuracy and completeness of company experience studies Provides a database to establish industry experience tables Identify outliers and monitor changes in company experience factors vs. a common benchmark Basis for establishing and updating prescribed assumptions and margins Larger and more consistent statistical samples 7/31/19 5

VM-50 Section 2.A: Statutory Authority Section 13 of NAIC Model Regulation #820 A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the Valuation Manual. Applies to policies in force on or after the operative date of the Valuation Manual 7/31/19

VM-50 Section 2.B Experience Reporting Agent An Experience Reporting Agent will be used for the purpose of collecting, pooling and aggregating data submitted by companies as prescribed by lines of business included in VM-51. The NAIC is designated as Experience Reporting Agent for the Statistical Plan for Mortality beginning Jan. 1, 2020. 7/31/19

VM-50 Section 3.B: Role and Responsibilities of the NAIC Design data collection procedures to meet the regulatory requirements of VM-51. Provide sufficient notice to reporting companies of changes, procedures and error tolerances to enable them to prepare for the data submission. Aggregate the experience of companies using a common set of classifications and definitions to develop industry experience tables. Enter into agreements with a group of state insurance departments for the collection of information included in VM-51. The number of states will be based on achieving the target level of industry experience. Undergo periodic external audits to validate that controls are consistent with industry standards and best practices. 7/31/19 8

VM-50 Section 4.C: Data Ownership Submitted experience data will be considered property of the company Similarly, recognition of company ownership will not affect the ability of state insurance regulators from using the data for solvency oversight, financial examinations, and financial analysis Recognition of company data ownership will not affect the ability of state insurance regulators or the NAIC to use data in accordance with state laws based on Model # 820 7/31/19 9

VM-50 Section 5: Experience Data Reports Reports to State Insurance Departments A list of companies included in experience reports A list of companies whose data was excluded because it fell outside the tolerances set for missing or invalid data, or for any other reason. Supplemental Reports Basic Reports Required aggregate reports are defined in each statistical plan in VM-51 Basic reports can be produced for the entire industry or by state of domicile State regulators may request additional reports from the NAIC for specific lines of business State regulators may also request custom reports which may contain specific data or experience not regularly produced in other reports. 7/31/19 10

VM-50 Section 6 Treatment of Confidential Information (CI) CI only shared with: regulatory agencies, the company, the NAIC, auditors of the NAIC, and contractors of the NAIC or other regulatory agencies according to state law. CI may be used by the NAIC to produce aggregate compilations of data. Reports using aggregate data are not considered CI. The NAIC will undergo periodic external audits to validate that appropriate data security controls are consistent with best practices. 7/31/19

Data Security Q&A Q: What specific measures is the NAIC taking to protect data? A: NAIC staff, regulators, insurance company staff, and others will be assigned secure login credentials to submit and/or access data based on defined roles for each type of user All data will be fully encrypted any time it is transferred between parties Any personally identifiable information (PII) will be encrypted while stored Annually, the NAIC will undertake a Service Organizational Control (SOC) 2 external data security audit and internally assess their data security practices through a Standardized Information Gathering (SIG) questionnaire The NAIC promotes data security throughout the organization through requiring mandatory cybersecurity training for all personnel and by committing to industry best practices 7/31/19

Overview of VM-51: Experience Reporting Formats VM-51 lists the information each statistical plan shall contain Currently, VM-51 defines the statistical plan for mortality for the individual ordinary life line of business Statistical plans are to be added to VM-51 when they are ready to be implemented 7/31/19 13

VM-51 Section 1.B: Information Each Statistical Plan Shall Contain Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 14

VM-51 Statistical Plan for Mortality 7/31/19 15

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 16

VM-51 Section 2.A: Type of Experience Collected The statistical plan for mortality collects mortality experience, although both death and non-death terminations will be reported VM-51 Section 1.B.1 notes the following types of experience data that could be collected under future statistical plans: Policy behavior experience, such as surrenders, lapses, conversions, premium payment patterns, etc. Company expense experience, such as commission expense, policy issue and maintenance expense, company overhead expenses, etc. 7/31/19 17

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 18

VM-51 Section 2.B: Scope of Business to Include Direct written individual ordinary life insurance business written in the U.S. prior to any reinsurance ceded Note: Reinsurance assumed from a ceding company is out of scope with the exception of assumption reinsurance of an individual ordinary life line of business, where: policies have been novated, and the assuming company is legally responsible for all benefits and claims paid Policies issued as conversions from term Individual policies that have converted from group contracts Term/paid up riders or additional amounts of insurance purchased through dividend options Terminations (both death and non-death) 19 7/31/19

VM-51 Section 2.B: Business Out of Scope Simplified Issue Guaranteed Issue Worksite Individually solicited group life Direct Response Final Expense Pre-need Home service Credit Life COLI, BOLI, and CHOLI Reinsurance Ceded (values must be prior to reinsurance ceded) Reinsurance Assumed (except for assumption reinsurance) Policies that cover more than two lives on the base policy segment Child term riders 7/31/19 20

Scope Example #1 Company Business Description Company Data Submission Direct written individual life insurance and annuity products For life insurance products, the company utilizes a full underwriting process for some products, and a simplified issue process for others The company s inforce includes both BOLI and CHOLI Include the experience data for life insurance products subject to full underwriting Do not include experience data for life insurance products using a simplified issue underwriting process, BOLI, CHOLI, and annuities 7/31/19 21

Scope of Business Q&A Q: Why is reinsurance assumed from a ceding company (other than assumption reinsurance) excluded from the mortality statistical plan? A: To avoid double counting. Direct writers are responsible for reporting pre-reinsurance amounts. Assumption reinsurance is included in scope because the reinsurer takes full legal responsibility (i.e. policies have been novated) and the ceding entity no longer reports the business on its books. 7/31/19 22

Scope of Business Q&A (Continued) Q: My company is the direct writer for a block of business in scope, but the business is covered by a 100% coinsurance arrangement and is now administered by the assuming company. The policies were not legally novated. Does my company need to submit mortality experience data for this business? A: Yes. Unless the policies were legally novated, the original direct writer of the life insurance will be required to submit the mortality experience data. 7/31/19 23

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 24

How did the NAIC select companies to submit mortality experience? Based on VM-51 Section 2.C, using premiums and claims reported in the annual statement Ensure that all companies currently participating in KS & NY data calls are selected Eliminate companies likely to qualify for the Life PBR Exemption based on ordinary life premium Rank groups of affiliates and individual companies by direct claim size and select from highest to lowest Eliminate companies out of scope based on direct individual life premium Aim to achieve target of 85% of industry mortality experience For more detailed information see https://www.naic.org/pbr_data.htm for a memo on company selection. 25

Company Selection Q&A Q: Now that my company has been selected for VM-51 mortality experience data collection, will we be required to provide data every year? A: Yes, barring circumstances justifying an exemption. It is desirable to have consistency in the group of companies reporting mortality experience data from year to year. This will help in the creation of industry experience tables and monitoring of changes in experience over time. 7/31/19 26

Company Selection Q&A (Continued) Q: Now that my company has been selected to submit data to the NAIC, can state insurance departments also request data? A: Yes. VM-50 Section 2.B.2 states that designation of the NAIC as Experience Reporting Agent does not preclude state insurance regulators from independently engaging other entities for similar data required under this Valuation Manual or other data purposes. 7/31/19 27

Company Selection Q&A (Continued) Q: Our company has well over 50 million of direct individual life premium. Why were we not selected to submit mortality experience data? A: VM-51 Section 2.C exempts companies with less than $50 million of direct individual life premium. However, this does not necessarily mean that companies with more than $50 million in premium have to submit data. After removing the companies that are exempt, the goal is to achieve a target level of approximately 85% of industry experience data being collected. To do this, we ranked companies from highest to lowest based on claims and selected the number of companies needed to reach the target. 7/31/19 28

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 29

Statistical Plan for Mortality: Data Elements and Format Comma-delimited file with .csv extension other file types will not be accepted 46 data elements in each record Each file must contain data for only one legal entity. 7/31/19 30

Mortality Statistical Plan Appendices 1, 2, and 3 Appendix 1 Preferred Class Structure Questionnaire Purpose is to gather information on company s preferred class structures Multiple copies of questionnaire can be used if one is not sufficient Appendix 2 Mortality Claims Questionnaire Questionnaire allows companies to confirm that they are submitting death claim data as specified Appendix 3 The insurance product type is specified by a Plan code in VM-51. Appendix 3 allows companies to request additional codes if their products are not able to be specified by the existing Plan codes Additional Plan Code Form 7/31/19 31

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 32

VM-51 Section 2.D: Process for Submitting Data Data shall be submitted annually using the Regulatory Data Collection (RDC) online software submission application developed by the NAIC. Definitions: Reporting calendar year = the calendar year the company submits experience data Observation calendar year = the calendar year 2 years prior to the reporting calendar year The data submission is based on the requirements of the Valuation Manual in effect for the reporting calendar year. Example: Given a reporting calendar year of 2020, the 2020 Valuation Manual requirements apply. 7/31/19 33

VM-51 Section 2.D: Process for Submitting Data (continued) Given a 2020 reporting calendar year and a 2018 observation calendar year, experience data should be reported as follows: Report policies in force during or issued during calendar year 2018 Report terminations that were incurred in calendar year 2018 and reported before July 1, 2019. Exclude rescinded policies (e.g. 10 day free look exercises) from the data submission. 7/31/19 34

Process for Submitting Data NAIC Regulatory Data Collection (RDC) tool is used to upload Appendices 1-4 along with the control and reconciliation files Each company will be provided with secure credentials to submit experience data File Upload RDC tool automatically performs exception checking and notifies companies via email when complete RDC tool will produce descriptions of any exceptions along with the affected file line numbers Exception Checking Once the exception report has been reviewed, the company can re- upload a corrected file or submit the current file File Submission 7/31/19 35

Statistical Plan for Mortality Type of Experience Data Required Experience Data Reports Scope of Business Statistical Plans Criteria for Selecting Companies to Submit Data Process for Submitting Data Data Elements and Formats 7/31/19 36

VM-51 Section 2.F Required Experience Data Reports The NAIC will provide the SOA a report with aggregated experience that will be used to develop industry experience and valuation mortality tables As long as a company is licensed in a state, that state insurance regulator will be given access to the company s experience data that is stored on a confidential database at the NAIC. Access by the state insurance regulator will be controlled by security credentials issued to the state insurance regulators by the NAIC. 7/31/19 37

NAIC Data Review Process 7/31/19 38

NAIC Data Review Process: Automated RDC Form and Format Checks The RDC tool automatically performs exception checking and notifies companies via email when complete. Exception checking is based on rules set up for each field. A listing of these rules will be posted on the NAIC website. Examples of checks performed by RDC: Fields with missing data (e.g. blank values in required fields such as Issue Date) In fields where there is a selection of values given, RDC confirms that the field contains one of the valid values. Basic cross-field validations (e.g. certain fields are only to be populated when segment number = 1). 7/31/19 39

NAIC Data Review Process: Reasonability Checks Performed by Actuarial Staff VM-50 Section 4.B.8 states that at a minimum, reasonability checks performed by the NAIC will include: An unusually large percentage of company data reported under a single or very limited number of categories Unusual or unlikely reporting patterns in a company s data Claim amounts that appear unusually high or low for the corresponding exposure Reported claims without corresponding policy values and exposures Unreasonable loss frequencies or amounts in comparison to ranges of expectation that recognize statistical fluctuation Unusual shifts in the distribution of business from one reporting period to the next. 7/31/19 40

Data Submission Q&A Q: What are the company s responsibilities relating to the quality of data submissions? A: The Valuation Manual notes the following responsibilities: There can be nothing known to be inaccurate or deceptive in the reporting (VM-50 Section 4.A.2) When the NAIC determines that the cause of a data exception could produce systematic errors, the company must correct the error and respond in a timely fashion (VM-50 Section 4.A.3) When an error is found that has affected data reported to the NAIC, the company shall report the nature of the error and its likely impact to the NAIC (VM-50 Section 4.A.3) Control totals (VM-50 Section 4.B.2) and a reconciliation (VM-50 Section 4.B.3) between the submission and financial statistical data are required. Companies must respond to data exceptions identified by the NAIC as critical (VM-50 Section 4.B.11) 7/31/19 41

Data Review Q&A Q: Is the criteria on whether to accept a company s mortality data submission all-or-nothing ? A: No. A company s data submission may be accepted in its entirety, accepted partially, or may not be accepted at all. VM- 50 Section 4.B.12 states that the Experience Reporting Agent will use its discretion regarding the omission of data from reports owing to the failure of an insurer company to respond adequately to unusual reasonability indications. Completeness of reports is desirable, but not at the risk of including data that appears to have an unreasonably high chance of containing significant errors. 7/31/19 42

Data Review Q&A (Continued) Q: Will the NAIC communicate whether they are accepting or rejecting data? A: Yes. Companies will have multiple opportunities to receive feedback on their experience data submission. The RDC tool will automatically provide an exception report once a company submits their data. Additionally, NAIC staff will communicate with companies on any critical issues they find during the actuarial review of the company experience data submission. Companies will have until December 31, 2020 to make corrections to their data submissions. NAIC staff will let you know which data is excluded from experience reports. 7/31/19 43

Preparing for the Data Submission 7/31/19 44

Preparation Steps 1. Determine the business in scope for data collection. 2. Determine whether your company plans to have any exclusions or request any exemptions, and if so, notify the NAIC as soon as possible. 3. Perform a reconciliation between the Exhibit of Life Insurance (Ordinary Life) and the mortality experience data to be submitted, using the template to be provided on the NAIC website. Note: A reconciliation is required by VM-50 Section 4.B.3. 4. Begin creating the mortality experience data file according to the format shown in VM-51 Appendix 4. Use the data screening checks (to be posted on the NAIC website) as you build the file to ensure it meets form and format requirements. Important Notes: This must be a fixed-width text file with .csv extension Each file must contain data for a single legal entity. 7/31/19 45

Preparation Steps (continued) 5. Attend the NAIC training webinar on the RDC tool which will be used to submit mortality data (to be posted on the NAIC website in late Q3, 2019). 6. Test your experience data file in advance of the actual submission using the RDC test environment (available starting in Q4, 2019). Review descriptions of data exceptions and make changes to the data file as needed. 7. Prepare a set of control totals to balance against the data submission using the template to be posted on the NAIC s website. Note: Control totals are required by VM-50 Section 4.B.2. 8. Prepare the information required in VM-51 Appendices 1 3. 9. Contact the NAIC with questions and concerns the earlier the better! 7/31/19 46

Preparation Step 2: Exemptions and Exclusions Hardship exemptions may apply for some companies A group of affiliated companies may exclude data from affiliates with less than $10 million in direct individual life premium. We encourage groups not to provide data for these small affiliates. VM-51 Section 2.C states that additional exemptions may be granted by the NAIC where appropriate, following consultation with the domestic regulator. For example, a large proportion of the company s business may be out of scope (Simplified Issue, Guaranteed Issue, COLI, etc.). Please contact the NAIC at experience_reporting@naic.org as soon as possible if you plan to request any exemptions. 7/31/19 47

Hardship Exemptions: VM-51 Section 2.E Policies issued on or after 1/1/1990 Policies issued before 1/1/1990 Companies may certify that submitting data presents a hardship due to fields not readily available in their systems/databases or legacy computer systems that continue to be used for older issued policies and differ from computer systems for newer issued policies. If policies are excluded, companies must: Document the percentage that the face amount of policies excluded are relative to the face amount of submitted policies issued on or after Jan. 1, 1990; and Certify that this requirement presents a hardship (for same reasons noted in left box). 7/31/19 48

Preparation Step 3: Reconciliation Against Financial Data Exhibit of Life Insurance, Ordinary Life SI/GI Business Final Expense/Preneed COLI/BOLI/CHOLI Subtractions Reinsurance Assumed Policies Excluded due to Exemptions Terminations incurred during reporting year but reported January 1st June 30th of following year Additions Company Mortality Experience Submission 7/31/19 49

Data Collection Timeline 7/31/19 50