NAIC.SSAP-63

Reading: Statement of Statutory Accounting Principles 63, “Underwriting Pools,” paragraphs 1-11.

Author: National Association of Insurance Commissioners, Accounting Practices and Procedures Manual

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BA Quick-Summary: Accounting Principles - Underwriting Pools The Statement of Statutory Accounting Principles No. 63 outlines the principles for underwriting pools and associations, categorizing them as: involuntary pools - provides insurance to high-risk individuals voluntary pools - formed without state mandates intercompany pools - involve affiliated entities sharing business through reinsurance agreements

Study Tips

The year of publication for the manual changes each year but the content generally does not. We will let you know if there is a major change.

This reading is only 3 pages and consists of 11 paragraphs of information related to underwriting pools. My strategy for learning this material is to read these 12 paragraphs and look for items that would make good exam questions. Then I'll make BattleCards those items. For a reading this short, I'm aiming for a basic understanding what's covered and 6-8 relevant facts to memorize.

Estimated study time: 30 minutes (not including subsequent review time)

BattleTable

No past exam questions are available for this reading.

reference	part (a)	part (b)	part (c)	part (d)

Full BattleQuiz

In Plain English!

Basic Information

This SSAP establishes statutory accounting principles for underwriting pools and associations. There are 3 types of underwriting pools and associations:

(a) involuntary

(b) voluntary

(c) intercompany

Voluntary and involuntary pools are part of the Relevant Comments section of the SAO, which was introduced in Odomirok.16-17-SAO - Miscellaneous. Intercompany pooling is a part of the Scope section of the SAO andwas introduced in Odomirok.16-17-SAO - The Boring Details.

Here is a brief description of each type of pool:

(a) involuntary pool

- stated-mandated (participation is manadatory)

- provides coverage to high-risk customers who can't otherwise find coverage (Ex: young drivers or those with poor driving records)

- premiums & losses are shared according to participants' share of the voluntary market

- also called residual market plans (see Cook.Personal)

(b) voluntary pool

- not state-mandated (participation is voluntary)

- provides greater capacity for risks with very high insurable values (Ex: aircraft, nuclear)

- premium & loss-sharing mechanism not specified

(c) intercompany pool

- relates to business pooled among affiliated entities (see Inter-Company Pooling on Schedule P)

- premiums & losses are shared according to a quota-share reinsurance agreement

   (pooled business is ceded to the lead entity, then retroceded back to the pool participants in accordance with their quota-share)

- see this forum post for a question on intercompany pooling from an SOA exam

Accounting

Here's a factoid that seems like it might be important:

Question: how are U/W results for voluntary & involuntary pools accounted for: gross or net

• gross

→ this means that premiums, losses, expenses are recorded separately in financial statements not netted against each other

→ business ceded to a pool is treated as "normal" reinsurance

And one more:

Question: are equity interests in a pool treated as admitted or non-admitted assets

• admitted

(this is a "cash advance" to provide funding for the pool and is separate from receivables and payables related to a pool's underwriting results)

Question: can members of a pool be subject to joint & several liability

• yes! (seems a little unfair doesn't it? click on the link above if you're not sure what this is)

Disclosures

There's a long paragraph within SSAP-63 about disclosures but most of it is pretty obvious and you could guess most of it. If a reporting entity is part of a pooling arrangement where participants cede substantially all of their business to the pool, the financial statements shall include:

• description of the terms of the arrangement including lines of business covered
• identification of the lead entity and all participants including pooling percentages
• amounts due to/from lead entity and all participants
• other arrangements that fall outside of the normal pooling agreement including reinsurance with non-affiliated reinsurers

I think that's about it for this reading.

mini BattleQuiz 1

Some Extra Stuff

Topic Missing from Study Guide	What to Add	Why It Matters for Exams
Servicing carrier vs pool manager	Pools may operate through servicing carriers (issue policies, handle claims) or through a pool manager/administrator that bills participants. Liabilities should be treated consistently with SSAP No. 5R.	Exam questions often test operational nuances and linkage to SSAP 5R treatment.
Intercompany pooling mechanics (full structure)	Intercompany pools operate via quota share reinsurance: business is ceded to the lead entity and retroceded back to participants. Some arrangements allow the lead to retain 100% while others have 0% net share.	Tests understanding of how pooling legally functions, not just that it exists.
Direct liability only for issuing entity	In intercompany pools, only the policy-issuing entity has direct liability to policyholders; other participants are liable as reinsurers.	Common trick question distinguishing insurer liability vs reinsurance liability.
Consistency of transaction timing	All participants must apply transaction timing consistently when recording pooled business, even if assumptions differ (e.g., discount rates).	Subtle detail frequently used in technical accounting questions.
Gross reporting applies to intercompany pools too	Intercompany pooling transactions must also be reported on a gross basis, consistent with voluntary and involuntary pools.	Easy point loss if a question asks which pool types require gross reporting.
Recording mechanics (direct, assumed, ceded)	Premiums and losses must be recorded as direct, assumed, and/or ceded as applicable. Pool participation is recorded as assumed business.	Exams often test classification (direct vs assumed vs ceded), not just gross vs net.
Equity interests: write-off vs disclosure threshold	If uncollectible is probable → write off. If reasonably possible → disclose per SSAP No. 5R.	Probability thresholds are classic actuarial exam material.
Detailed disclosure requirements	Must disclose: timing of cessions to non-affiliated reinsurers, entities with direct recovery rights, discrepancies between assumed/ceded schedules, non-proportional intercompany sharing, Aging of Ceded Reinsurance treatment.	Disclosure details are commonly tested in list-style or multiple-select questions.

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