NAIC.SSAP-63
Reading: Accounting Practices and Procedures Manual, 2019, Statement of Statutory Accounting Principles 63, “Underwriting Pools,”
Author: NAIC
Contents
Pop Quiz
Study Tips
The CAS syllabus citation for this article is confusing. The syllabus says this is a new reading but it actually isn't. 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 12 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)
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 (shout-out to gs!)
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.
