The NAIC 2018 Fall National Meeting was held in San Francisco from Nov. 15-18.
The Statutory Accounting Principles Working Group met on Thursday, Nov. 15. The group adopted various revisions that will be incorporated into the Accounting Practices and Procedures Manual. There were four substantive revisions that will take effect in December 2018 and January 2019.
The California wildfires were discussed throughout the NAIC meeting in San Francisco, including the potential impact on the insurance industry in addition to the individuals impacted by the event. The Anti-Fraud Working Group is working on template language to allow state insurance departments to more easily assist each other when catastrophic events occur to assist in fraud and other insurance issues.
While at the meeting, the smoke outside was a stark reminder of the devastation about a hundred miles away that was significantly impacting normal life around the San Francisco Bay Area such as school closures, advisories to stay indoors, temporary closure of the historical streetcars and others.
Statutory Accounting Principles Working Group (SAPWG)
The SAPWG adopted the following revisions for incorporation into Accounting Practices and Procedures Manual.
Adopted the following substantive revisions to statutory accounting guidance (effective upon adoption unless a date is specifically noted):
- SSAP No. 21—Other Admitted Assets: Revisions detail that periodic-certain structured settlements acquired in accordance with state and federal laws are admitted assets effective Dec. 31, 2018. Life-contingent structured settlements and periodic-certain structured settlements not acquired pursuant to state and federal laws are nonadmitted assets. The NAIC will be developing an issue paper for historical purposes, as well as an annual statement blanks proposal to clarify that each structured settlement reported as an “any other class of asset” on Schedule BA—Other Long-Term Assets.
- Statement of Statutory Accounting Principles (SSAP) No. 30R—Unaffiliated Common Stock and Issue Paper No. 158—Unaffiliated Common Stock: Effective Jan. 1, 2019, the common stock definition will include U.S. Securities and Exchange Commission registered closed-end funds and unit-investment trusts within scope. An annual statement blanks proposal will be developed to capture unit investment trusts and closed-end funds on Schedule D, Part 2, Section 2 – Common Stocks.
- SSAP No. 62R—Property and Casualty Reinsurance: The revisions clarify the determination of reinsurance credit and incorporate language from EITF 93-6, Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises and EITF D-035, FASB Staff Views on Issue No. 93-6 effective Jan. 1, 2019. The Working Group directed an issue paper documenting the substantive revisions. The Working Group directed that comments received from Connecticut and New Jersey involving SSAP No. 61R—Life, Deposit-Type and Accident and Health Reinsurance be forwarded to the informal Life and Health Reinsurance Drafting Group for subsequent consideration.
- SSAP No. 108—Derivatives Hedging Variable Annuity Guarantees and Issue Paper 159—Special Accounting for Limited Derivatives: The new SSAP prescribes guidance for derivatives that hedge interest rate risk of variable annuity guarantees, with an effective date of Jan. 1, 2020, with early adoption permitted as of Jan. 1, 2019.
Adopted the following nonsubstantive revisions to statutory accounting guidance (effective upon adoption unless a date is specifically noted):
- SSAP No. 15—Debt and Holding Company Obligations and SSAP No. 25—Affiliates and Other Related Parties: Revisions reference existing guidance in SSAP No. 72—Surplus and Quasi-Reorganization for when there has been forgiveness of a debt owed
- SSAP No. 22—Leases: Revisions reject ASU 2018-01, Leases – Land Easement Practical Expedient for Transition to Topic 842 for statutory accounting. Reference of this rejection will also be captured in the proposed substantively revised SSAP No. 22R—Leases as part of the ongoing review of ASU 2016-02, Leases.
- SSAP No. 43R—Loan-Backed and Structured Securities: Revisions remove the modified filing exempt (MFE) process for determining NAIC designations effective March 31, 2019. The Working Group directed an annual statement blanks proposal to eliminate the MFE concept from the reporting instructions.
- SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies:Revisions require the SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities loss-tracking disclosure effective year-end 2018 for SSAP No. 48 entities when a reporting entity’s share of losses exceeds its investment in the entity.
- SSAP No. 51—Life Contracts, SSAP No. 52—Deposit-Type Contracts, and SSAP No. 61R: Revisions add life liquidity disclosures and expand the variable annuity liquidity disclosures for year-end 2019.
- SSAP No. 68—Business Combinations and Goodwill: Revisions clarify that statutory mergers include scenarios in which the stock of an owned entity is cancelled, with the parent entity reporting the assumed assets and liabilities. These scenarios are subject to the statutory accounting restatement guidance.
- SSAP No. 72: Revisions clarify that when a reporting entity provides a distribution that is a return of capital it shall be reported with a charge to gross paid in and contributed surplus.
- SSAP No. 86—Derivatives: Revisions adopt limited provisions from ASU 2017-12, Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities pertaining to hedge effectiveness documentation requirements. The revisions are effective Jan. 1, 2019, with early adoption permitted. Reporting entities that are also U.S. generally accepted accounting principles (GAAP) filers may only early adopt if they have early adopted ASU 2017-12.
- Appendix A—Excerpts of NAIC Model Laws: Revisions remove the phrase “good and sufficient” from Appendix A-820—Minimum Life and Annuity Reserve Standards to be consistent with the related model law.
- Appendix B—Interpretations of Statutory Accounting Principles: Revisions adopt INT 18-04—Extension of Ninety-Day Rule for the Impact of Hurricane Florence and Hurricane Michael, to provide a temporary extension to the 90-day rule under SSAP No. 6—Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due from Agents and Brokers. INT 18-04 will be automatically nullified March 7, 2019.
Adopted the following editorial revisions to statutory accounting:
- SSAP No. 86: Revisions remove the Dec. 31, 2017, effective date for the derivative financing premium disclosures as additional disclosures were adopted in 2018.
- SSAP No. 97: Revisions remove old paragraph numbers that are not applicable in the current SSAP and update the description of the changes to reference the applicable SSAPs.
- Appendix A-010—Minimum Reserve Standards for Individual and Group Health Insurance Contracts: Revisions update paragraph references and update an incorrect date.