What Is a Convention Statement?

A convention statement is a mandatory document filed by an insurance or 澳洲幸运5官方开奖结果体彩网:reinsurance compaꦰny that serves as its annual financial statement. Convention statements are commonly prepared by companies that provide life insurance and contain information about their as🧔sets and liabilities among other things. The use of convention statements is regulated by individual states. The insurance commissioner in each state regulates the filing of convention statements and may specify certain requirements in addition to those outlined above.

Understanding Convention Statements

The convention statement is a financial statement prepared by insurance companies and reinsurers, especially those that offer life insurance to their customers. It is similar to financial statements that publicly-traded companies prepare and file with the 澳洲幸运5官方开奖结果体彩网:Securities an𝐆d Exchange Commission (SEC). It is a public record and is filed with regulators in the states where these companies practice. The National Association🍌 of I♓nsurance Commissioners (NAIC) provides a basic format that member states may use.

Since the insurance industry has state-level regulations, the structure of the convention statement changes from state to state. Different jurisdictions may also place specific requirements on this document. One component that is present on all convention statements is the statement of a company's assets, liabilities, and either loss or surplus. This means t🔯hat things like reserves, investments, and outstanding debts 𝔍must be reported.

This accounting allows the state to determine whether the ratio of assets to 澳洲幸运5官方开奖结果体彩网:liabilities is sufficient to meet potential claims. If regulators are satisfied with the listed amount of assets, then the company does not undergo greater oversight. However, the regulators will require companies that are at risk of being able to cover all claim liability to reduce their risk exposure adequately. These failing companies may need to submit more frequent reports on their 澳洲幸运5官方开奖结果体彩网:financial health and risk 澳洲幸运5官方开奖结果体彩网:portfolio.

Special Considerations

State insurance commissions have a 澳洲幸运5官方开奖结果体彩网:vested interest in making sure that insurance companies doing business within the state boundaries remain financially solvent. The convention statement serves to address any🌠 such concerns and may serve as an advance warning to state commissions that a company may be having financial pro🌜blems.

States require that claims made by residents be honored in a timely manner. Regulators also want to avoid situations in which the government has to step in to provide financial assistance to an insurer. Since convention statements are a matter of public record, they allow investors, businesses, and potential policyholders to determine if an insurer is in a position to settle claims. This 澳洲幸运5官方开奖结果体彩网:transparency is crucial for consumers as they consider wh𝓰ich insurers to work with and which to avoid.

The NAIC updates itಌs database of insurers on an annual basis. According to the NAIC financial statement filing website:

"Participation in the Database provides essential data for the Insurance Regulatory Information System (IRIS) Financial Ratio Reports, risk-based capital analysis, and other solvency-related reviews of individual companies, including reporting compliance and financial analysis."

Convention Statement vs. Annual Report

As noted above, a convention statement is a financial statement filed by insurance companies in their states. It is the equivalent of the annual reports fil𝓀ed by public companies to highlight their operations and financial condition.

Some of the information in corporate annual reports include a general overview of the company, financial statements, a letter to shareholders, and a report from the auditor. There are also notes and 澳洲幸运5官方开奖结果体彩网:addendums to the financial statements along with corporate accounting policies. Annual reports give investors a realistic picture of how companies fared in the previous year and where it expects to go in the future.

The Bottom Line

Insurance companies are required to file public disclosures just like public companies. But unlike these corporations, these reports are filed with state insurance regulators. Called convention statements, they contain information about insurers' assets, liabilities, and other pertinent information. Individuals and regulators can review convention statements to see whether an insurer is financially equipped to pay out any claims.

Correction—June 29, 2023: A previous version of this article stated that insurance companies cannot sue the NAIC. This was corrected to show that state commissioners and associated parties are immune from liability as they uphold the law.