Convention Statement

What Is a Convention Statement?

A convention statement is a mandatory document filed by an insurance or reinsurance company that serves as its annual financial statement. Most commonly, companies that provide life insurance will use this type of financial statement.

Individual states regulate the use of convention statements, and the requirements will vary. However, all states mandate that the report along with any supporting documentation show the assets, liabilities, and loss or surplus of the reporting company. The loss or surplus is the difference between the assets and liabilities. 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

Since the insurance industry has state-level regulations, the structure of the convention statement will change from state to state. Also, different jurisdictions may place specific requirements on the document. One component that is present on all convention statements is the statement of a company's assets, liabilities, and either loss or surplus.

The company will file the report with the regulators in the states where they practice. The National Association of Insurance Commissioners (NAIC) provides a basic format that member states may use. The NAIC also maintains a copy of this form for its database, which you can download here.

The convention statement includes details about an insurance company’s assets, such as reserves and investments, as well as its liabilities. This accounting allows the state to determine whether the ratio of assets to liabilities is sufficient to meet potential claims. If the state 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 financial health and risk portfolio.

State insurance commissions have a 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 the state insurance commissions that a company may be having financial problems.

States require the honoring of claims made by their residents 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. The convention statement becomes a public record. As such, it allows investors, businesses, and potential policyholders to determine if a particular insurer is likely to be able to settle a claim for damage. This transparency is crucial for consumers as they consider which insurers to work with and which to avoid.

Real-World Example

NAIC updates its 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."

Insurance companies are not allowed to file civil lawsuits against the NAIC, its employees, or associated persons for collecting, analyzing, and publishing the convention statement, provided that the parties are acting in good faith. This legal protection provides protection for the NAIC and related groups interested in reviewing the material without fear of retribution for what they discover. The NAIC requires insurers to file their reports electronically since 2012.