NAIC Announces Schedule P Changes for Insurance Companies

Starting with 2024 year ends, the National Association of Insurance Commissioners (NAIC) has updated the instructions for completing Schedule P of the annual statement. The reporting change requires insurers to report ten years of historical loss data for certain lines of business that previously only required two years of data, including:

• Specialty property (fire, allied lines, inland marine, earthquake, burglary and theft)
• Auto physical damage
• Fidelity/surety
• Other (including credit, accident, and health)
• Financial guaranty/mortgage guaranty
• Warranty
• Pet insurance plans

Statutory insurers that write these lines will need to adjust their reporting practices to comply with the changes.

What are the impacts for insurance companies?

The update aims to improve the accuracy and transparency of loss and loss adjustment expense reporting in the annual statement. The benefits include:

• More accurate loss development analysis – The NAIC found that some of the current 2-year lines of business experience significant loss development beyond the initial two years, sometimes up to 25% of development in the ‘prior year’ row
• Reduced errors – Eliminating the need for calculations to derive the ‘prior year’ row data minimizes potential reporting errors
• Improved data consistency and understanding – Including ten years of data for all lines of business allows for streamlined reconciliation with summary data, making Schedule P easier to analyze
• Enhanced regulatory oversight – The increased data provides regulators with a more comprehensive view of historical trends, facilitating better risk assessment

The NAIC also noted that there seems to be no significant time, printing, or cost savings derived by showing only two years of data for these lines and the projected benefits outweigh any marginal cost.

Preparing for Schedule P changes

The NAIC recommends a one-step implementation, as property and casualty insurers already maintain ten years of data for these lines of business for other reporting purposes including the Schedule P Summary and the Risk-based Capital (RBC) calculations.

Insurers with the lines of business impacted should proactively familiarize themselves with the changes and adjust their data collection and reporting processes accordingly to ensure compliance when filing the 2024 annual statements. If you have questions about the changes to Schedule P reporting requirements and its impact on your organization, please reach out to the Johnson Lambert team.

Source: NAIC Blanks Working Group (2023-16BWG Modified)