The Statutory Accounting Principles Working Group is working on a disclosure template that could help regulators find out when an insurer is about to face a cash crunch.

The working group, part of the Financial Condition Committee at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., has posted an “exposure draft” version of a Fund Demand Disclosure for Institutional Business template on its section of the NAIC website.

Comments are due Sept. 30.

The working group is asking for ideas about ways to maintain the confidentiality of reports submitted using the template.

The working group wants an insurer to be able to use the template to give regulators confidential information about matters relating to “liquidity risk,” or the likelihood that the insurer might have to come up with cash quickly.

The template, based on a form developed by New York state insurance regulators, includes questions about matters such as whether an insurer has a formal, written liquidity plan; an insurer’s access to means of raising cash, such as the ability to issue commercial paper or draw on lines of credit; and the insurer’s use of yield-enhancing activities such as securities lending and repurchase agreements.

In one table, an insurer would list large holders of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) arrangements.

In another table, an insurer would list holdings of equity real estate, commercial mortgage loans and other potentially illiquid assets.

Template drafters have crossed out questions in an earlier version of the template that deal with severe mortality.

One crossed-out question asks insurers to, “Provide a high-level explanation of the magnitude of a severe mortality event that the company’s surplus and any contingency funds could withstand.”

- Allison Bell

Other liquidity coverage from National Underwriter Life & Health: