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Maine.gov > PFR Home > Insurance Regulation > Letters from Superintendent Kofman > Permitted Accounting Practices
Statement of Superintendent Kofman on Permitted Accounting Practices
In response to an unprecedented volume of requests to waive various financial reporting requirements for insurance companies, Maine Superintendent of Insurance Mila Kofman issued a bulletin today, reaffirming Maine’s commitment to follow the accounting practices codified by the National Association of Insurance Commissioners (NAIC).
“Permitted practices” are alternative methods of calculating an insurer’s assets or liabilities that differ from the NAIC accounting manuals but have been approved by the insurance regulator based on special circumstances. This year, many insurers have requested permitted practices, in part, seeking to mitigate the impact of the current financial crisis on insurers’ investment performance. Superintendent Kofman explained, however, that changing the measuring techniques does not in fact change the investment performance.
“Especially in times like these,” Superintendent Kofman emphasized in her bulletin, “it is essential for an insurer’s financial statement to give meaningful information on how well the insurer has withstood the stresses that all businesses and consumers have had to endure. The states adopted uniform statutory insurance accounting practices in order to establish a level playing field, based on clear and consistent financial reporting according to methods that have been determined to provide the most accurate portrayal of an insurer’s financial condition.”
Many of the permitted practice requests arose out of efforts late last year by some insurers to persuade the NAIC to relax its accounting standards so that they would not have to report the full decline in the market value of their investments as a net loss. The NAIC established a Capital and Surplus Relief Working Group to evaluate the requested changes. Superintendent Kofman was appointed as one of the members of the working group. Although Superintendent Kofman voted against weakening the standards, the working group recommended some of them for adoption. These changes, however, were rejected by the NAIC Executive Committee on January 29, 2009.
Since then, regulators in some states have approved requests by their domestic insurers to apply, as “permitted practices,” the same revised accounting principles that the NAIC voted down. The bulletin warns that “special accounting practices approved in a Maine-licensed insurer’s home state will not be automatically approved for use in Maine. The insurer’s financial statement is required to include a reconciliation to codified statutory accounting practices, and Maine will follow those common standards in evaluating the insurer’s assets, liabilities, and surplus requirements unless the insurer can demonstrate with particularity why an exception should be made, consistent with the same standards used for granting permitted practices in exceptional cases in prior years.”
Click on the links below to access Bulletin 355 and the Implementation Guidance for Bulletin 355.
Last Updated: August 22, 2012
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