The Statutory Accounting Principles Working Group met via conference on Nov. 6, 2017 and adopted various revisions prior to the meeting that will be incorporated into the March 2017 Accounting Practices and Procedures Manual. The only substantive revision impacted Statements of Statutory Accounting Principles No. 100R – Fair Value. All other revisions were nonsubstantive.
The National Association of Insurance Commissioners (NAIC) Model Acts and Model Regulations are adopted by the NAIC, and it is at the option of each domiciliary state to adopt such model into its state laws and regulations. If a model is adopted as a NAIC accreditation standard, it is no longer optional for the states and is required to be incorporated in each state’s laws and regulations within a specified time frame.
The fall NAIC meeting was held in Honolulu, Hawaii, Dec. 2 - 4. Two accreditation standards were adopted: the Corporate Governance Annual Disclosure Model Act (#305) and the Corporate Governance Annual Disclosure Model Regulation (#306), which require insurance companies to file an annual Corporate Governance Disclosure Form.
Certain other models were discussed as accreditation standards but deferred, including the 2014 revisions to the Insurance Holding Company System Regulatory Act (#440) as an update to the Part A: Holding Company Systems accreditation standard, and Model #787 for possible inclusion into the Part A: Laws and Regulations accreditation standard. Adoption of these models remains at each state’s discretion and, therefore, each insurer should check their state’s filing requirements.
Statutory Accounting Principles Working Group (SAPWG)
The SAPWG adopted the following revisions for incorporation into the March 2017 Accounting Practices and Procedures Manual. The revisions are effective immediately unless indicated.
Adopted the following substantive revisions to statutory accounting guidance:
- Statement Statutory Accounting Principle (SSAP) 100 R Fair Value – Adopts ASU 2017-24 and Issue Paper No. 157: Revisions adopt Issue Paper No. 157 and substantive revisions to SSAP No. 100R to allow net asset value per share as a practical expedient to fair value, either when specifically named in a SSAP or when specific conditions exist. Effective Jan. 1, 2018; early adoption is permitted.
Adopted the following nonsubstantive revisions to statutory accounting guidance (effective upon adoption unless date specifically noted):
- Appendix F Policy Statements- Adopts ASU 2016-13: Revisions adopt the policy statement to be included in the Accounting Practices & Procedures Manual. Final language was sent to the Valuation of Securities (E) Task Force for inclusion within the Purposes and Procedures Manual of the NAIC Investment Analysis Office.
- SSAP 86 Derivatives (Schedule DB) – Adopts ASU 2016-48: Revisions capture information on financing premiums in derivative contracts in aggregate and require disclosures in a narrative format for year-end 2017.
- SSAP 86 Derivatives – Adopts ASU 2017-04: Revisions clarify that variation margin changes shall not be recognized as “settlement” until the derivative contract has terminated and/or otherwise expired. Effective Jan. 1, 2018, for entities that previously considered variation margin changes to be Settlement.
- SSAP 97 Investments in Subsidiary, Controlled and Affiliated (SCA) Entities – Adopts ASU 2017-08: Revisions update the SCA filing deadlines. The Sub 1 filing deadline is 90 days after the initial acquisition or formation of an SCA. The Sub 2 filing deadline is Aug. 31, with a provision to allow a one-month deadline after the audit date for an SCA entity that regularly receives its audit report after Aug. 31. Effective for 2018 Filings.
- SSAP 107 Risk-Sharing Provisions of the Affordable Care Act – Adopts ASU 2017-26: Revisions reflect the high-cost risk pool claims reimbursements as increases to premium, as requested by industry representatives. Effective Jan. 1, 2018 (HCRP Program begins in 2018).
Financial Regulation Standards and Accreditation (F) Committee (FRSAC)
The FRSAC considered each of the following proposed accreditation items during the hearing. Accreditation model acts would be adopted by all states in the near future if not previously adopted by your state as these items would become examination requirements. Each model act was adopted as an accreditation item, exposed or deferred action as noted below. Further detail, including meeting materials related to each of these items, is available from the NAIC or your Eide Bailly representative.
Adopted the Corporate Governance Annual Disclosure Model Act (#305) and the Corporate Governance Annual Disclosure Model Regulation (#306):
- The Corporate Governance Annual Disclosure Model Act (#305) and Corporate Governance Annual Disclosure Model Regulation (#306) require an insurer (or group of insurers) to provide a confidential disclosure regarding its corporate governance practices to the lead state and/or domestic regulator annually by June 1. The insurer (or group of insurers) may choose to provide information on governance activities that occur at the ultimate controlling parent level, an intermediate holding company level and/or the individual legal entity level, based on its determination of the level at which decisions are made, oversight is provided and governance accountability is assessed in relation to the insurance activities of the insurer.
The insurer has discretion regarding the appropriate format for providing the information and is permitted to customize the communication to provide the most relevant information necessary to permit the domiciliary commissioner to gain an understanding of the corporate governance structure, policies and practices utilized by the insurer. However, at a minimum, the disclosure is required to address:
- The insurer’s corporate governance framework and structure;
- The policies and practices of its board of directors and significant committees;
- The policies and practices directing senior management; and
- The processes by which the board of directors, its committees and senior management ensure an appropriate level of oversight to the critical risk areas impacting the insurer’s business activities.
In completing the annual disclosure, the insurer may reference other existing documents (e.g., the Own Risk and Solvency Assessment (ORSA) Summary Report, holding company Form B or Form F filings, U.S. Securities and Exchange Commission (SEC) proxy statements, foreign regulatory reporting requirements, etc.) to the regulator in fulfillment of the information requested in various areas.
All information provided in the annual disclosure is recognized as being proprietary to the insurer and containing trade secrets. Therefore, confidentiality language was included in Model #305 stating that all such information is deemed confidential by law and privileged, is not subject to subpoena and is not subject to discovery or admissible in evidence in any private civil action. However, the domiciliary commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner’s official duties.
The accreditation standard will become effective Jan. 1, 2020.
Deferred Action until the 2018 Spring National Meeting:
- The Insurance Holding Company System Regulatory Act (#440) update to Part A: Holding Company Systems accreditation standard. The Committee voted to defer action at this time and will discuss further at the 2018 Spring National Meeting.
- Discussed Model #787 for possible inclusion into the Part A: Laws and Regulations accreditation standard. The Committee voted to defer action at this time to discuss further at the 2018 Spring National Meeting.