The Spring NAIC meeting was held April 8-11 in Denver. There were various substantive revisions to SSAP No. 26R – Bonds and Issue Paper No. 156 – Bonds along with various nonsubstantive revisions to statutory accounting guidance.
Statutory Accounting Principles Working Group (SAPWG)
The SAPWG considered each of the following items during the hearing. Each was adopted, exposed or rejected 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 following substantive revisions to statutory accounting guidance:
- SSAP No. 26R—Bonds and Issue Paper No. 156—Bonds: These revisions, effective December 31, 2017, remove Securities Valuation Office (SVO)-identified instruments from the definition of a bond and provide separate accounting guidance for these instruments. The revisions also incorporate the definition of a “security” within the definition of a bond, and incorporate definitions for non-bond, fixed-income instruments.
Adopted the following nonsubstantive revisions to statutory accounting guidance (effective upon adoption unless date specifically noted):
- SSAP No. 30—Unaffiliated Common Stock, SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Method of Accounting and SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities: The revisions adopt with modification ASU 2016-07 – Simplifying the Transition to the Equity Method of Accounting. This ASU eliminates the requirement to make retroactive adjustments when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence.
- SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses and SSAP No. 65—Property and Casualty Contracts: Revisions incorporate additional disclosures from ASU 2015-09: Insurance --- Disclosures about Short-Duration Contracts not currently captured in statutory accounting, but rejects ASU 2015-09, with indication that reporting entities shall follow the statutory accounting disclosures.
- SSAP No. 69—Statement of Cash Flow: Adopts ASU 2016-15 – Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, with language clarifying the effective date and transition.
- INT 01-25—Accounting for U.S. Treasury Inflation-Indexed Securities: Revisions clarify that the guidance in INT 01-25 is limited to direct obligations of the U.S. government.
- Appendix A—791: Revisions incorporate additional language from the Life and Health Reinsurance Agreements Model Regulation (#791) to note that the reinsurance agreement shall constitute the entire agreement and that amendments are required to be signed by all parties to be effective.
- Appendix F—Policy Statements: The new policy statement on coordination with the Valuation Manual.
Exposed the following substantive revisions to statutory accounting guidance:
- SSAP No. 43R—Loan-Backed and Structured Securities
Key revisions include the following:
- Revise definitions for investments within scope of SSAP No. 43R. Under revision, it is intended that securities with a single obligor will no longer be in scope of SSAP No. 43R, but instead will be captured within SSAP No. 26.
- A title change of SSAP No. 43R, as well as a broad change from “loan-backed and structured securities” to “structured finance securities” throughout the SSAP.
- Revisions to clarify admitted asset requirements.
- New SSAP/Issue Paper – Special Accounting Treatment for Limited Derivatives Hedging Variable Annuity Guarantees: Exposed revised statutory accounting guidance that considered prior industry comments. Directed a request to the Variable Annuity Issues (E) Working Group for input on hedging programs originally captured under the accounting guidance, but are subsequently terminated or become ineffective.
Exposed the following nonsubstantive revisions to statutory accounting guidance:
- SSAP No. 26—Bonds: Requests input as to bank loans, focusing on loans directly issued by the reporting entity, and whether such loans should be captured within the scope of SSAP No. 26 including consideration on variations between bank loans directly issued, and those acquired, and whether different risks warrant different accounting.
- SSAP No. 37—Mortgage Loans: Revises the definition of a mortgage loan, as well as examples of investments intended to be captured within SSAP No. 37.
- SSAP No. 41R—Surplus Notes: Revisions provide guidance regarding surplus notes issued at a discount or a premium and incorporate illustrations into a new exhibit.
- SSAP No. 65—Property and Casualty Contracts: Expands disclosures for high-deductible policies to facilitate data capture for year-end 2017.
- SSAP No. 69—Statement of Cash Flows: Adopts ASU 2016-18 – Statement of Cash Flows – Restricted Cash with a year-end 2019 effective date and requests comments on whether a definition for “restricted cash and cash equivalents” is needed and if there are concerns with retrospective application.
- SSAP No. 86—Derivatives: Clarifies liability recognition for the cost to acquire derivatives with a deferred or financing premium, as well as to provide disclosures and specific reporting for these premiums.
- SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities: Revises the deadlines for Sub 1 and Sub 2 filings and requests comments on the proposed time frames.
- SSAP No. 101—Income Taxes: Rejects ASU 2016-16 – Intra-Entity Transfers of Assets Other than Inventory.
- SSAP No. 104R—Share-Based Payments: Adopts with modification ASU 2016-09: Improvements to Employee Share-Based Payment Accounting.
- Appendix A—010: Minimum Reserve Standards for Individual and Accident and Health Insurance Contracts: Incorporates the 2016 Cancer Claim Cost Valuation Tables into Appendix A—010.
- Appendix D—Nonapplicable GAAP Pronouncements: The following Financial Accounting Standards Board (FASB) pronouncements are proposed to be rejected as not applicable to statutory accounting:
- ASU 2017-06 – Plan Accounting – Master Trust Reporting
- ASU 2017-02 – Clarifying When a Not-for-Profit Entity that is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity
- ASU 2017-03 – Amendments to SEC Guidance
- Appendix F—Policy Statements: New policy statement describes coordination and collaboration between the Purposes and Procedures Manual of the Investment Analysis Office (P&P Manual) and Accounting Practices and Procedures Manual (AP&P Manual).