2 2013 Annual Report National Insurance Producer Registry
About the NAIC
NIPRCompany Profile
The National Insurance Producer Registry (NIPR) was incorporated in 1996 as a non-profit affiliate of the National Association of Insurance Commissioners (NAIC). NIPR is governed by a Board of Directors including members of the NAIC and individuals representing a cross section of the insurance industry. NIPR was instrumental in the development and implementation of the Producer Database (PDB) and the Gateway for electronic appointments/terminations and licensing.
NIPR provides support for the NAIC’s State Producer Licensing Database (SPLD) and NIPR’s PDB. Both are electronic databases consisting of information relating to insurance producers (agents and brokers), with the PDB available to the insurance industry to use in the licensing and compliance process. The NAIC’s SPLD is regulator only and accessible through the NAIC’s I-SITE. NIPR’s PDB complies with the Fair Credit Reporting Act and is available to the industry. These databases provide information from participating state regulatory licensing systems into common repositories of producer information. Regulators have access to the Regulatory Information Retrieval System (RIRS) through the NAIC’s SPLD and industry, through PDB, has access to RIRS to provide a more comprehensive producer profile. The key benefits of these producer databases are: • Financial/Timesavings • Reductioninpaper • Centralizedsourceofdata • Easyonlineaccess • Verificationoflicenseandstatusin53jurisdictions
The Gateway is a communication network that links state insurance regulators with the entities they regulate to facilitate the electronic exchange of producer information. Data standards have been developed for the exchange of license application, license renewal, appointment/termination submissions and address changes within a resident state. All data flowing over the Gateway will conform to these data standards. The key benefits of the Gateway are: • Paperfreetransactions • Nationalstandardsforelectronictransmission • Fasterturnaroundtime • Electronicpaymentforfees
The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting andregulatorysupportorganizationcreatedandgovernedbythechiefinsuranceregulatorsfrom the 50 states, the District of Columbia and five U.S. territories.Through the NAIC,state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.
3National Insurance Producer Registry
NIPR provides one-stop shopping for all aspects of electronic producer licensing.
Mission
Vision
NIPR is a unique public-private partnership that supports the work of the states and the NAIC in making the producer-licensing process more cost-effective, streamlined and uniform for the benefit of regulators, the insurance industry and the consumers they protect and serve.
4 2013 Annual Report National Insurance Producer Registry
Buildinganorganizationismuchlikebuildingahouse:whenbuiltonastrongfoundationitiseasier to expand and reinforce. The National Insurance Producer Registry (NIPR) has been building a foundation for electronic producer licensing that will stand the test of time. NIPR’s morethan15yearsofexistencehavegivenustheperspectiveandvisionneededtoaugmentand enhance that foundation.
In 2013, NIPR completed one of its most significant accomplishments to date. With thecooperation and collaboration of regulators and the NAIC, NIPR completed electronic non-resident licensing and renewals in all jurisdictions; the cornerstone of our vision of “one-stopshopping.” Thenon-resident licensingapplicationwasestablished in2000andnowencompasses all 50 states, the District of Columbia, Puerto Rico andVirgin Islands.Therealizationofthislong-termgoalmeansthatproducerscanutilizeNIPR,costeffectivelyandefficiently,toapplyfornon-residentlicensesandrenewalsinalljurisdictions.
NIPR continues to support the achievement of producer licensing uniformity through the developmentandimplementationofprojectsforregulatorsandindustry.Havingmetthegoalofestablishing NIPR as the primary electronic resource for completion of non-resident licensing and renewals, focus has now shifted to the completion of resident licensing and renewals andprovidingonlinesolutionsforinsuranceadjusters.NIPRworkedcloselywiththeNAIC,regulatorsandindustrytoexpandproductsandservicestosupporttheadjusterlicensingandrenewalprocessbyimplementationoftheDesignatedHomeStatefunctionality,whichallowsanadjusterwhosehomestatedoesnotissueadjusterlicensestodesignateadifferenthomestateinordertoapplyforandrenewadjusterlicenses.ThisworkwascompletedinsupportoftheNAICIndependentAdjusterGuidelines.
Last year, we also renovated our website, NIPR.com, making it easier to use and find information,aswellasmorevisuallypleasing. Wecontinuallystrive tomakeNIPR.comabetter education and marketing vehicle to show our users the services we provide on behalf of the states.
Just like the foundation of a building, sometimes the most important changes are the ones that cannot be seen:
Seeking to improve the structure of NIPR to foster continued improvement of our products and services, last year we contracted with a consulting firm to perform a business operations analysis. Based on the results of the analysis, NIPR will be looking at a number of changes and improvements including designing a cost-based pricing tool that we can use to help set pricing in the future.
We also built a detailed receipt page to respond to individual producer requests fordocumentation for licensing transactions processed through NIPR. It not only provides areceipt itemizingwhat licensingactivitywasrequestedandpaid for,butmakes thatreceipt available for several months after the transaction has completed.
The collection and transfer of state fees was improved through enhancements to e-commerce reports, and the customer experience was improved through use of online forms that assist support staff in responding to customer issues.
Officers’ Message
5National Insurance Producer Registry
Roger SevignyCommissioner, New Hampshire Insurance Department
John FieldingCouncil of Insurance Agents & Brokers
Sharon ClarkCommissioner,Kentucky Department of Insurance
President Secretary/TreasurerVice President
NIPRdidnotstopwiththesemajoraccomplishmentsin2013.Wealsoprovidedsupporttotheregulators’producer-licensingneedsrelatedtotheAffordableCareAct.Theorganizationstands ready to assist with future needs of the states and industry.
WiththeretirementofNIPRExecutiveDirectorMaryellenWaggonerinSeptemberof2013,NIPR began a new chapter in its enduring mission to making the producer-licensing process more cost-effective, streamlined and uniform.
In2014,wewillenhanceNIPR’spopularAddressChangeRequestapplicationwiththeabilityfor producers to update email and telephone contact information, along with deploying an improved security software infrastructure.
In the months and years ahead, NIPR will continue to buttress and build the foundation of licensing technology and its suite of products for the benefit of regulators, the insurance industry and the consumers they serve.
6 2013 Annual Report National Insurance Producer Registry
TheProducerDatabase(PDB)isacentralizedrepositoryofproducerlicensinginformationupdatedonatimelybasisandmade available to the insurance industry. The primary purpose of PDB is to facilitate the ability to track pertinent information regarding licensed producers, a key to restoring consumer trust in the insurance industry with increased transparency and more uniformity.
PDBhasfiveprimaryproducts:DetailReport,CompanySpecializedReport,CompanyAppointmentReport,CompanyAppointment Reconciliation Report and Alerts.
DETAIL REPORTThe Detail Report allows the user to view all supplied information for a single producer, agency or company. This report willreturninformationfromalljurisdictionsthatareprovidingdata.Thisinformationincludes:
•Generaldemographicinformationsuchasnameandaddress•Licenseinformation,suchasjurisdictionslicensed,licensenumber,licensestatusandlinesofauthority.Designated
HomeStatesforAdjusterlicensesisanewadditiontothereport•Appointmentinformationsuchascompanyappointments,effectivedate,terminationdateandterminationreason•Regulatory actions (if taken) completed, adjudicated and reported actions submitted by the state insurance
departments
COMPANY SPECIALIZED REPORT (CSR)This customized report is useful when a full Detail Report is not needed. The user can select specific licensinginformationfromthefollowingPDBdatafieldstocreatetheirownspecializedreport:LicenseNumber(automaticallyreturned when requesting license data options), License Status, Resident/Non-Resident, License Issue/Expiration Date, Lines of Authority Status (LOA name is automatically returned when asking for data options) and Regulatory Information Retrieval System (RIRS) information.
COMPANY APPOINTMENT REPORT (CAR)The Company Appointment Report allows a company to view a listing of all active appointments and/or terminations. This report is company specific and state specific. Companies can only view data for their own affiliated companies.
COMPANY APPOINTMENT RECONCILIATION REPORT (CARR) This report is designed to facilitate the appointment renewal process for regulators and the insurance industry. Similar totheCompanyAppointmentReport,theCARRhastheaddedfunctionalityofcompleting“NotforCause”terminationsdirectly from the report. This allows the user to reconcile the company’s producer listing against the Producer Database. The terminations are generated electronically through the Gateway and sent to the appropriate state insurance department for processing.
ALERTSThe PDB Alerts product is designed to provide notification to subscribers indicating a change has been made to the data stored in the Producer Database. Customers will have multiple options on accessing the data, selection of information desired and tracking individual producers. Customers receive a notification when a producer has a change in the following:
•Appointments:Receives,renewsorterminatesanappointmentfromaninsurancecompany•Demographics:Changestoaresidence,business,mailingorotheraddressinoneorallofthelicensedjurisdictions•Licensing:Amends,cancels,changesoraddsalineorlicense•RegulatoryActions(RIRS):Anadjudicatedregulatoryactiontakenhasbeentakenagainstthembyajurisdiction
Products & ServicesProducer Database
7National Insurance Producer Registry
Resident
IndividualProducers
2,142,044
AgencyProducers
188,813
OH 76,259IL
86,047
NC 91,194
SC 37,205
GA 72,217
AL 33,266
MS 21,846
AR 22,683
OK 28,808
TX 207,601
AK 3,203
LA 38,476
FL 247,511
TN 47,017
KY 28,413
IN 46,584
MI 65,317
WI 39,487
MN 42,732
IA 27,670NE
17,369
KS 26,259
SD 8,670
ND 6,567
MT 8,531
WY 3,262
CO 40,177
NM 9,311
AZ 50,319
UT 23,189
ID 10,321
NV 18,014
CA 227,911
OR 22,456
WA 37,608
WV 10,596 VA
62,964
VT 3,570
NH 7,865
MA 33,428
RI 6,829
CT 30,922
NJ 60,822
DE 7,382
MD 39,756
DC 1,476
HI 8,085
PR
10,750
VI
384
PA 88,888
NY 116,787
ME 9,278
MO 50,688
Non-Resident
IndividualProducers
5,240,099
AgencyProducers
330,992
Total Producers
Resident
2,330,857
Non-Resident
5,571,091
Least
Total by State
Most
Producer Licensing (in 2013)
Producer Licensing (in 2013)
8 2013 Annual Report National Insurance Producer Registry
nipr.comIn2013...
Average visits per day ...............12,321Average visits per visitor ............2.01Average page views per day .....24,809Average page views per visit .....2.01
TheGatewayfacilitatestheexchangeofproducerlicensinginformationbetweenjurisdictioninsuranceregulatorsand the entities they regulate. The Gateway was designed to improve the effectiveness and efficiency of the state licensing process, with the goal of simplifying the communications and quickly distributing information regarding licensing applications, such as appointments and terminations, Address Change Requests and the Attachments Warehouse.TheGatewayprovidesacostefficientmethodofdatatransferthatwillprovideanopportunityforincreased revenue and reduction in costs. This process takes the guesswork out of producer licensing for the insurance industry as it provides the ability to track transactions. It is significant in aiding the ‘speed to market’ products.
APPOINTMENTS/TERMINATIONSThe Gateway requires certain data standards for the transfer of appointment and termination information between state insurance regulators and the industry. There are now three options to submit appointments/terminations through the Gateway.
1) NIPR’s Interactive Appointments/Terminations (IAT) A front-end application which allows insurance carriers to appoint and terminate using the National Producer
Number (NPN), eliminating the use of the SSN. These transactions are validated with the PDB prior to submission, greatly reducing the number of declines.
2) Customer Programming In order to process appointments/terminations directly through the Gateway (i.e. NOT using IAT),
programming on the company’s behalf is required. This option allows clients to establish specified programming requirements and to build their own product.
3) NIPR’s Authorized Business Partners (ABPs) CompaniescanchoosetoutilizeoneofNIPR’sABPs,whichoffervalue-addedservices.
The Gateway has the capability to accept payment for state appointment fees through Electronic Funds Transfer (EFT). This feature enhances the benefits of moving data electronically: accuracy, timeliness, efficiency and cost reduction.
Gateway
Products & Services
20082,353,942visits
2009*4,412,923visits
20102,630,171visits
20113,189,167visits
20123,642,887visits
20134,497,034visits
*duetosoftwarerewrite
9National Insurance Producer Registry
APPOINTMENT RENEWALSForparticipatingjurisdictions,industrycangototheNIPRwebsiteandprocesstheircompanyappointmentrenewalinvoice(s). Renewal transactions will be sent to the State to automatically update their system, which in turn uploads thedatatothePDB.Thisproducteliminatestheneedforjurisdictionstomailoutthepaperworkandlikewiseforthe company to return paperwork.
LICENSING APPLICATIONSNIPR’s applications give producers the ability to quickly and easily apply for or renew a license in a resident or non-resident state.
The initial Resident and Resident Renewal Licensing applications further the facilitation of accelerated producer licensing by giving a producer, which has met the state’s requirements, the ability to apply electronically for resident licensing. This application also allows producers to renew their resident license.
Initial Non-Resident Licensing applications are based upon the producer’s resident state lines of authority. Using astandardizedformat,theonlineapplicationverifiesproducerinformationwiththePDB,sothereisnoneedforaletter of certification. The application automatically calculates fees and allows the user to apply in multiple states using a single application.
NIPR implemented a new licensing type, Adjuster Designated Home State (ADHS). The stand-alone Non-ResidentAdjusterLicensing(NRAL)applicationallowsanadjustertodesignateahomestate.Thiswillbenefitindividuals whose home state/jurisdiction does not license adjusters. These adjusters will now be able todesignate thenon-residentadjuster licenseas their residentstate/jurisdiction. Theapplicantmay thenapplyforothernon-residentadjusterlicensesinparticipatingjurisdictions.Adjusterscanalsorenewtheirlicensesinparticipatingjurisdictions.
ADDRESS CHANGE REQUEST (ACR)Withmorethan2.3millionlicensedindividualsholdingmorethan6millionlicenses,producersandstateinsurancedepartments process hundreds of thousands of address change requests annually. The former process to change addresses differed from state to state and often involved time consuming paper forms and manual entry. WithACR,aproducercanleveragetechnologytocompleteaddresschangesformultiplestatesusingonlyoneon-lineform.ProducersandauthorizeduserscansubmitindividualproduceraddresschangesthroughtheNIPRwebsite, www.NIPR.com.
10 2013 Annual Report National Insurance Producer Registry
TheAttachmentsWarehouseisasecuredatabasethatreceives,storesandsharesapplicationandbackgroundinformation requested by regulators from the producers.
BACKGROUND QUESTIONS SUPPORTING DOCUMENTS (BQSD) TheoriginalfunctionoftheAttachmentsWarehouseiscalledtheBackgroundQuestionsSupportingDocuments.When additional information or documentation is requested by the regulators in response to an affirmativeanswertooneormoreofthebackgroundquestionsontheuniformapplication(s)-theAttachmentsWarehouseallows producers to submit this data to multiple states at one time, instead of individually by fax or by mail. State regulatorswillbenotifiedwhendocumentsaresubmittedtotheWarehousesotheycanaccesstheinformation.Thedocumentonlyneedstobesubmittedonce,andanyparticipatingjurisdictioncanobtainthedocument.
REPORTING OF ACTIONS (ROA)TheWarehouse also includes the Reporting of Actions function. The ROA function provides the means toallow producers to satisfy their regulatory requirements with respect to the notification and reporting of all administrative, criminal and civil (if applicable) actions. Pursuant to states’ laws, the duty to report the action andprovidedocumentationisrequiredwithinthirty(30)days,consistentwiththelanguagefoundintheNAICProducerLicensingModelActSection17.
twitter138tweets
177following
455followers(+81or22%)
facebook1768newlikes
189791totalImpressions
2248likes,comments,andreposts
Attachments Warehouse
Products & Services
11National Insurance Producer Registry
Licensing and Appointments
AppointmentsRevenue
Volume
Terminations Non-Resident Licensing
Non-Resident Renewals Resident Licensing Resident Renewals
$6 mil
$5 mil
$4 mil
$3 mil
$2 mil
$1 mil
$02006 2007 2008 2009 2010 2011 2012 2013
2006 2007 2008 2009 2010 2011 2012 2013
11 mil
10 mil
9 mil
8 mil
7 mil
6 mil
5 mil
4 mil
3 mil
2 mil
1 mil
0
licensing and appointments
12 2013 Annual Report National Insurance Producer Registry
Audit Report
TotheMembersoftheBoardofDirectorsNational Insurance Producer RegistryKansasCity,Missouri
Report on the Financial StatementsWehaveauditedtheaccompanyingfinancialstatementsoftheNationalInsuranceProducerRegistry(theNIPR),whichcomprisethestatementsoffinancialpositionasofDecember31,2013and2012,andtherelatedstatementof activities and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagementisresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewith accounting principles generally accepted in the United States of America; this includes the design,implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOurresponsibility is toexpressanopinionon thesefinancialstatementsbasedonouraudits.Weconductedour audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionoftheNIPRasofDecember31,2013and2012,andthechangesinitsnetassetsanditscashflowsfor the years then ended, in conformity with accounting principles generally accepted in the United States of America.
KansasCity,MissouriFebruary21,2014
Independent Auditor’s Report
13National Insurance Producer Registry
Statements of Financial PositionDecember31,2013and2012
Assets 2013 2012
Current Assets: Cash and cash equivalents $ 13,755,615 $ 13,142,855 Accounts receivable, less allowance for doubtful accounts;2013-$26,120and2012-$20,509 2,105,887 2,209,745 Interest receivable 20,860 32,031 Prepaid expenses 57,574 66,617 Investments (Note 2) 19,094,073 15,373,629
Total current assets 35,034,009 30,824,877
Propertyandequipment,net(Note3) 3,725 13,068
Total assets $ 35,037,734 $ 30,837,945
Liabilities and Net Assets
Current Liabilities: Accounts payable $ 2,040,123 $ 2,038,097 Accrued expenses 585,598 651,622 Deferred revenue - 9,133
Total current liabilities 2,625,721 2,698,852
Net Assets:
Unrestricted 32,412,013 28,139,093
Total liabilities and net assets $ 35,037,734 $ 30,837,945
See Notes to Financial Statements.
14 2013 Annual Report National Insurance Producer Registry
YearsEndedDecember31,2013and2012
2013 2012
Revenues: Access and transaction fees $ 24,330,231 $ 21,259,106 Other income 36,417 113,184
Total revenues 24,366,648 21,372,290
Expenses: Administrative services and license fees 10,559,482 9,546,704 Salaries 5,016,267 4,821,174 Employee benefits 1,456,933 1,300,233 Professional services 4,622,467 3,725,191 Travel 475,438 459,326 Rental and maintenance 99,167 104,904 Depreciation 9,343 16,415 Insurance 82,600 78,369 Office services 76,386 128,430 Bad debt expense 53,591 29,026 Other expenses 38,751 78,635
Total expenses 22,490,425 20,288,407
Changes in net assets before investment income and SPL Cost Recovery 1,876,223 1,083,883 Investment income (Note 2) 2,396,697 1,800,723 SPLCostRecovery(Note4) - (6,881,392)
Changes in net assets 4,272,920 (3,996,786)
Net assets, beginning of year 28,139,093 32,135,879
Net assets, end of year $ 32,412,013 $ 28,139,093
See Notes to Financial Statements.
Audit ReportStatements of Activities
15National Insurance Producer Registry
Statements of Cash FlowsYearsEndedDecember31,2013and2012
2013 2012
Cash Flows from Operating Activities: Changes in net assets $ 4,272,920 $ (3,996,786) Adjustmentstoreconcilechangesinnetassetstonet cash flows from operating activities: Depreciation 9,343 16,415 Netrealizedandunrealizedloss(gain)oninvestments (1,879,494) (1,076,668) Changes in operating assets and liabilities: Accounts receivable 103,858 535,688 Interest receivable 11,171 14,405 Prepaid expenses 9,043 (22,088) Deferred revenues (9,133) (73,367) Accounts payable 2,026 1,002,011 Accrued expenses (66,024) 4,673
Net cash provided by (used in) operating activities 2,453,710 (3,595,717)
Cash Flows from Investing Activities: Purchase of investments (5,967,738) (5,762,473) Proceeds from disposition of investments 4,126,788 13,767,246 Purchases of property and equipment - (4,664) Net cash provided by (used in) investing activities (1,840,950) 8,000,109
Net increase in cash and cash equivalents 612,760 4,404,392
Cash and Cash Equivalents: Beginning 13,142,855 8,738,463 Ending $ 13,755,615 $ 13,142,855
See Notes to Financial Statements.
16 National Insurance Producer Registry
Note 1. Summary of Significant Accounting Policies
Nature of operations: The National Insurance Producer Registry (the NIPR) is a non-profit affiliate of the National Association of Insurance Commissioners (the NAIC). The NIPR combines the strengths of the public and private sectors to create products and services that benefit insurance regulators, industry and consumers.
Basis of accounting for revenues: The NIPR earns revenues predominantly through access fees and transaction fees. Access fees are earned when users access the NIPR’s Producer Database (PDB). The PDB is an electronic database consisting of information relating to insurance agents and brokers. The PDB links participating state regulatory licensing systems into one common repository of producer information. Transaction fees are earned when users process transactions through the NIPR Gateway. The NIPR Gateway facilitates the electronic exchange of producer information, including license applications, appointments and terminations. The NIPR earns revenue by charging a fee for providing the interface between industry and state regulators for licensing and other transactions.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: The NIPR considers all liquid investments with original maturities of one year or less to be cash equivalents.AtDecember31,2013and2012,cashequivalentsconsistedprimarilyofmoneymarketfunds.
Accounts receivable: Accounts receivable are stated at the amounts billed to customers. The NIPR provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer.
Investments: NIPR carries its investments in marketable securities with readily determinable fair values, and all investments in debt securities, at their fair values determined by reference to public exchanges. NIPR reports the fair value of alternative investments using the practical expedient. Unrealized gains and losses are included in the change in net assets in theaccompanying financial statements.
Investments may be exposed to various risks, such as interest rate, market and credit risks. As a result, it is at least reasonably possible that changes in risks in the near term could affect investment balances, and those effects could be significant.
Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each classoftheNIPR’sfinancialinstrumentsatDecember31,2013and2012:
Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of these instruments.
Investment securities, except alternative investments: The fair values of fixed income, and domestic and international equity investments are based on quoted market prices at the reporting date for those or similar investments. A portion of the fixed income investments are valued based on quoted prices for similar instruments in active markets.
Alternative investments: NIPR reports the fair value of market alternative investments using the practical expedient. Thepractical expedient allows for theuseof net asset value (NAV), either as reportedby the investee fundor asadjustedbyNIPRbasedonvariousfactors.
Audit ReportNotes to Financial Statements
17National Insurance Producer Registry
Fair value measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in its principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. NIPR accounts for its investments atfairvalue.Inaccordancewiththeguidance,NIPRhascategorizeditsinvestments,basedonthepriorityoftheinputstothevaluationtechniquewhichgivesthehighestprioritytounadjustedquotedpricesinactivemarketsforidenticalassets(Level1measurements)andthelowestprioritytounobservableinputs(Level3measurements).Thethreelevelsofthefairvaluehierarchy are described below:
Level 1-Quotedpricesforidenticalinstrumentstradedinactivemarkets.
Level 2 -Quotedpricesforsimilar instruments inactivemarkets;quotedpricesfor identicalorsimilar instruments ininactivemarkets;orderivedfrominputsthatareobservable.AlsoincludedinLevel2areinvestmentsmeasuredusingnetassetvalue(NAV)pershare,oritsequivalent,thatmayberedeemedatNAVatornearthereportingdate.
Level 3 -PrimarilyallLevel3investmentsarevaluedusingthepracticalexpedientandincludethoseinvestmentsthatcannotberedeemedatNAVatornearthereportingdate,orforwhichredemptionatNAVisuncertainduetolock-upperiods or other investment restrictions.
Investments and concentrations of credit risk: Financial instruments that potentially subject NIPR to significantconcentrations of credit risk consist principally of cash and investments. NIPR maintains deposits in financial institutions in excessoffederallyinsuredlimits.ManagementmonitorsthesoundnessofthesefinancialinstitutionsandbelievesNIPR’srisk is negligible.
Alternative investments are redeemable with the fund at net asset value under the original terms of the partnership and/or subscriptionagreements.However,itispossiblethattheseredemptionrightsmayberestrictedoreliminatedbythefundsin the future, in accordance with the fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the net asset value of the funds and, consequently, the fair value of the NIPR’s interests in the funds. Although a secondary market exists for these investments, it is not active andindividualtransactionsaretypicallynotobservable.Whentransactionsdooccurinthislimitedsecondarymarket,theymay occur at discounts to the reported net asset value. It is, therefore, reasonably possible that, if NIPR were to sell these investments in the secondary market, a buyer may require a discount to the reported net asset value, and the discount could be significant.
Property and equipment: Property and equipment are stated at cost. Routine repairs and maintenance are expensed as incurred. Depreciation is computed by the straight-line method over the estimated useful life of the related assets. Furnitureandequipment 5Years Computersoftware 3Years Computerhardware 3Years
Taxes: The NIPR has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section501(c)(6)oftheInternalRevenueCodeandasimilarprovisionofstatelaw.However,theNIPRissubjecttofederalincome tax on any unrelated business taxable income.
Uncertaintaxpositions,ifany,arerecordedinaccordancewithFASBASC740,IncomeTaxes.FASBASC740requirestherecognition of a liability for tax positions taken that do not meet the more-likely-than-not standard that the position will be sustained upon examination by the taxing authorities. There is no liability for uncertain tax positions recorded at December 31,2013or2012.
Forms 990 filed by NIPR are subject to examination by the Internal Revenue Service (IRS) up to three years from theextendedduedateofeachreturn.Forms990filedbyNIPRarenolongersubjecttoexaminationfortheyears2009andprior.
Functional expenses:TheNot-for-ProfitEntities topicof theFASBASC requiresnot-for-profitorganizations todiscloseexpensesbyfunctionalclassification.TheNIPRpresentsexpensesonlybytheirnaturalclassificationontheDecember31,2013and2012statementsofactivities.Managementbelieves thatdisclosingexpensesby function is insignificant to thefinancial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification.
18 National Insurance Producer Registry
Note 2. Investments and Investment Income
InvestmentscarriedatfairvalueatDecember31,2013and2012consistedofthefollowing: 2013 2012 Cost Fair Value Cost FairValue
Government bonds $ 688,566 $ 717,080 $ 699,620 $ 747,412Treasury inflation protected bonds 702,611 719,349 647,993 765,213Corporate bonds 2,115,757 2,087,664 1,785,836 1,783,390Fixed income mutual funds 3,038,969 3,224,505 2,918,410 3,223,507Foreign fixed income funds 1,064,896 1,012,842 949,381 947,602International bonds 102,936 103,985 102,936 106,601Common stock Industrials 360,625 698,352 315,197 468,287 Consumer discretionary 299,512 767,590 302,472 640,830 Financials 654,706 930,598 556,825 714,683 Information technology 890,991 1,357,632 703,578 910,178 Other industries 2,169,391 3,392,852 1,055,995 1,602,480Foreign common stock 193,218 366,277 228,172 314,520American depository receipts 106,042 195,992 280,096 409,543Foreign equity mutual funds 960,418 1,136,337 662,267 723,868Masterlimitedpartnership 757,189 1,079,123 766,832 818,979Alternative equity hedge funds 1,129,963 1,303,895 1,129,963 1,196,536
$ 15,235,790 $ 19,094,073 $13,105,573 $15,373,629
Total investment income is comprised of the following: 2013 2012Interest and dividend income $ 517,203 $ 724,055Netrealizedgains(losses) 289,267 957,281Netunrealizedgains(losses) 1,590,227 119,387
$ 2,396,697 $ 1,800,723
Thefollowingtablessummarizethefinancialinvestmentsmeasuredatfairvalueonarecurringbasis,segregated by the general classification of such instruments pursuant to the valuation hierarchy:
TotalDecember 31, 2013 Fair Value Level 1 Level 2 Level 3
Government bonds $ 717,080 $ - $ 717,080 $ -Treasury inflation protected bonds 719,349 - 719,349 -Corporate bonds 2,087,664 - 2,087,664 -Fixed income mutual funds 3,224,505 3,224,505 - -Foreign fixed income funds 1,012,842 1,012,842 - -International bonds 103,985 - 103,985 -Common stock Industrials 698,352 698,352 - - Consumer discretionary 767,590 767,590 - - Financials 930,598 930,598 - - Information technology 1,357,632 1,357,632 - - Other industries 3,392,852 3,392,852 - -Foreign common stock 366,277 366,277 - -American depository receipts 195,992 195,992 - -Foreign equity mutual funds 1,136,337 1,136,337 - -Masterlimitedpartnership 1,079,123 1,079,123 - -Alternative equity funds 1,303,895 - - 1,303,895
$ 19,094,073 $ 14,162,100 $ 3,628,078 $ 1,303,895
Notes to Financial Statements
19National Insurance Producer Registry
Note 2. Investments and Investment Income (Continued)
TotalDecember31,2012 FairValue Level1 Level2 Level3 Governmentbonds $ 747,412 $ - $ 747,412 $ -Treasuryinflationprotectedbonds 765,213 - 765,213 -Corporatebonds 1,783,390 - 1,783,390 -Fixedincomemutualfunds 3,223,507 3,223,507 - -Foreignfixedincomefunds 947,602 947,602 - -Internationalbonds 106,601 - 106,601 -Common stock Industrials 468,287 468,287 - - Consumerdiscretionary 640,830 640,830 - - Financials 714,683 714,683 - - Informationtechnology 910,178 910,178 - - Otherindustries 1,602,480 1,602,480 - -Foreigncommonstock 314,520 314,520 - -Americandepositoryreceipts 409,543 409,543 - -Foreignequitymutualfunds 723,868 723,868 - -Masterlimitedpartnership 818,979 818,979 - -Alternativeequityfunds 1,196,536 - - 1,196,536
$15,373,629 $10,774,477 $ 3,402,616 $ 1,196,536
Assetsmeasuredatfairvalueonarecurringbasisusingsignificantunobservableinputs(Level3)are as follows:
Alternative Equity Funds
December31,2011 $ 2,658,445 Settlements (1,562,154) Netrealizedgains 8,409 Netunrealizedgains 91,836
December31,2012 1,196,536 Netunrealizedgains 107,359
December 31, 2013 $ 1,303,895
Audit ReportNotes to Financial Statements
20 2013 Annual Report National Insurance Producer Registry
Note 2. Investments and Investment Income (Continued)
Alternative Equity Funds
2013 2012
Total gains (losses), net, included in earnings attributabletothechangeinunrealizedgains(losses),net,relatingtofinancial instruments still held $ 173,932 $ 66,573
The following tables set forth additional disclosure of the NIPR’s investments whose fair value is estimated usingnetassetvalue(NAV)pershare(oritsequivalent)asofDecember31,2013and2012:
Fair Value Unfunded Redemption Redemption Investment December 31, 2013 Commitment Frequency Notice Period
Alternative equity funds (A) $ 1,303,895 $ - Quarterly 95 days
FairValue Unfunded Redemption Redemption Investment December31,2012 Commitment Frequency NoticePeriod
Alternativeequityfunds(A) $ 1,196,536 $ - Quarterly 95days
(A) This fund aims to generate consistent absolute returns by investing in assets with a diversified group of investment managers through managed account structures (“Managed AccountStructures”) or in the private investment funds sponsored by investment managers (collectively, “HedgeFundManagers”or“HedgeFunds”).
Note 3. Property and Equipment
PropertyandequipmentatDecember31consistedof:
2013 2012
Furniture and equipment $ 20,167 $ 20,167Computer hardware 126,081 485,526Computer software 35,073 35,073 Total cost 181,321 540,766Lessaccumulateddepreciationandamortization 177,596 527,698
$ 3,725 $ 13,068
Audit ReportNotes to Financial Statements
21National Insurance Producer Registry
Note 4. Related Party TransactionsIn February, 2012, NAIC and NIPR finalized a new License and Services Agreement (the Agreement).TheinitialtermoftheagreementisfiveyearsandisretroactivelyeffectivetoJanuary1,2012.Theagreementwillautomatically renew each year thereafter unless either party provides written notice of termination to the other partynolaterthan180dayspriortotheendoftherenewalperiod.ThetermsinthenewAgreement,provideforalump-sumpaymentof$6,881,392toNAICasacostrecoverymechanismforNAIC’sremaininginvestmentinSPLasofDecember31,2011anddonotprovideforanyrepaymenttoNIPRofthiscostrecoveryamountiftheAgreement is cancelled prior to the end of the renewal period. The terms of the Agreement increased the fee for NIPRtousetheNAIC’sproducerdatafrom30%to38%.Inaddition,theadministrativefeechangedfromaflatfeeof$1,000,000totheactualcostofservices,facilities,andequipmentprovided.WiththefullreimbursementofNAIC’s previous investment in SPL the per transaction usage fee is no longer applicable. System usage fees for 2012forwardarerelatedtocurrentinfrastructurecosts.
The total amount charged during the year and amounts owed at year-end are as follows:
2013 2012
Administrative services provided by the NAIC $ 1,115,147 $ 1,289,158
License fee $ 9,225,778 $ 8,067,430
System Usage Fees $ 218,557 $ 190,117
SPL Cost Recovery $ - $ 6,881,392
Amounts payable to the NAIC $ 914,981 $ 954,568
Note 5. Defined Contribution PlanTheNIPRhasadefinedcontribution401(k)plan(thePlan),whichcoverssubstantiallyallemployeeswhohavecompleted one year or more of service. Each year the Board of Directors determines the contribution for the next year.In2013and2012,theNIPRmatchedupto3.5%ofcontributionsofthoseemployeeswhocontributedtothePlanandcontributed5%ofallemployees’annualcompensation.Contributionexpensewas$376,547and$341,097fortheyearsendedDecember31,2013and2012,respectively.
Note 6. Significant Estimates and ConcentrationsU.S. generally accepted accounting principles requires disclosure of certain significant estimates and current vulnerabilitiesdue tocertainconcentrations.Approximately31%and32%ofall revenue for theyearsendedDecember31,2013and2012,respectively,wasreceivedfromtwobusinesspartners. Note 7. Subsequent EventsManagement has performed an evaluation of events that have occurred subsequent to December 31, 2013throughFebruary21,2014.Therehavebeennoevents thatoccurredduringsuchperiod thatwould requiredisclosureinthesefinancialstatementsorwouldberequiredtoberecognizedinthefinancialstatementsasoforfortheyearendedDecember31,2013.
Notes to Financial Statements
22 2013 Annual Report National Insurance Producer Registry
THE HONORABLE SHARON CLARKCommissionerKentucky Department of InsuranceBoard Secretary/Treasurer*serveduntil12/06/13
DAVID EPPSTEINNational Association of Professional Insurance Agents (PIA)
JOHN FIELDINGCouncil of Insurance Agents & Brokers (CIAB)Board Vice President
DAVID LEIFERAmerican Council of Life Insurers (ACLI)
THE HONORABLE THOMAS LEONARDICommissionerConnecticut Insurance Department
THE HONORABLE MONICA LINDEENCommissioner of Insurance & SecuritiesMontanaOfficeofInsurance&Securities
SUZANNE LOOMISNational Alliance of Life Companies (NALC)
THE HONORABLE JULIE MIX McPEAKCommissionerTennessee Department of Commerce & Insurance
SENATOR BEN NELSONChief Executive OfficerNational Association of Insurance Commissioners (NAIC)Ex Officio Voting Member
THE HONORABLE SANDY PRAEGERCommissionerKansas Insurance Department
THE HONORABLE ROGER SEVIGNYCommissionerNewHampshireDepartmentofInsuranceBoard President
ÉLISE SPRIGGSProperty Casualty Insurers Corporation of America (PCI)
JESSICA WALTMANNationalAssociationofHealthUnderwriters(NAHU)
Board of Directors(as of December 31, 2013)
23National Insurance Producer Registry
Senior Management Staff (L to R)
Patricia HertleinSeniorManager,Sales&Marketing
Susan MaldonadoAssistant Director – Operations
Laurie WolfSeniorManager,RegulatorRelations
Interim Executive Director
Dennis WilsonAssistant Director – Technology Applications
Senior Management