Business News Select | SMPost | Terms

Term: Convention Statement

29 Mar 2015

A document filed by an insurance or reinsurance company that serves as its annual financial statement. Convention statements are regulated by individual states, and are most commonly associated with companies providing life insurance.

The structure of the convention statement may vary from state to state, as insurance is ultimately regulated on the state level and different jurisdictions may have different requirements. The National Association of Insurance Commissioners (NAIC) provides a basic format that member states use.

The convention statement includes details about an insurance company’s assets, such as reserves and investments, as well as its liabilities. This allows the state to determine whether the ratio of assets to liabilities is sufficient to meet potential claims. If the amount of assets is deemed sufficient then it is not put under greater oversight. Insurance companies that are at risk of not being able to cover potential claims may be forced to reduce their risk, and may have to submit more frequent reports as to their financial health and risk portfolio.

State insurance commissions have a vested interest in making sure that insurance companies doing business within the state remain financially solvent. States want claims made by their residents to be honoured, and want to avoid situations in which the government has to provide financial assistance. The convention statement is also made public, which allows investors, businesses, and other interested parties to determine whether an insurer is likely to be able to settle a claim.

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

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