NAIC Summer 2019 Update

September 2019 | Article

By Jason Lindstrom

The Summer NAIC meeting was held in New York, N.Y. from August 3, 2019, through
August 6, 2019.

  • The Statutory Accounting Principles Working Group met on Saturday, August 3, 2019. The group adopted various revisions that will be incorporated into the Accounting Practices and Procedures Manual. There were two substantive revisions made.
  • The Statutory Accounting Working Blanks Group met on Monday, June 24, 2019, and made various revisions to the Quarterly and Annual Statement Blanks.

The following is a summary of key takeaways from the latest meeting:

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:

  1. SSAP No. 22—Leases and corresponding Issue Paper No. 161—Leases to incorporate guidance from Accounting Standards Update (ASU) 2016-02, Leases, but maintain the operating lease concept, effective Jan. 1, 2020, with early adoption permitted.
  2. Issue Paper 162—Property and Casualty Reinsurance Credit to document for historical purposes the revisions related to SSAP No. 62R—Property and Casualty Reinsurance.

Adopted the following nonsubstantive revisions to statutory accounting guidance (effective upon adoption unless a date is specifically noted):

  1. SSAP No. 22—Leases – During the 2019 Spring National Meeting, the Working Group exposed Issue Paper No. 161 – Leases and proposed substantive revisions to SSAP No. 22 – Leases in response to ASU 2016-02 Leases. Interested parties supported the proposed changes, but comments were received requesting an expansion for lease determination beyond what is permitted under U.S. GAAP. Revisions are not supported, as they would create a GAAP to statutory accounting principles (SAP) difference in lease determination. Issue Paper No. 161 was revised to detail the requested change and the rationale for not incorporating the requested revisions. Effective date of Jan. 1, 2020 remains the same.
  2. SSAP No. 21R— Other Admitted Assets – During the 2019 Spring National Meeting, revisions were exposed to clarify that investments in scope of another SSAP do not become a collateral loan in scope of SSAP No. 21R— Other Admitted Assets, because the investment is also secured with collateral. Editorial comments were received from interested parties requesting to change the reference from “securities” to “investments,” and NAIC staff supports these edits.
  3. SSAP No. 37—Mortgage Loans – Participation Agreement in a Mortgage Loan. The revisions clarify that securities and funds are excluded with reference to “bundled” mortgage loans. The revisions also clarify the requirements for mortgage participation agreements.
  4. SSAP No. 25—Affiliates and Other Related Parties, SSAP No. 26R—Bonds, SSAP No. 32—Preferred Stock, SSAP No. 43R, and SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies – Affiliated Transactions. The revisions clarify a related party classification based on the substance of the transaction. The edits were incorporated to use the term “related party” when referring to the overall guidance, and the term “affiliate” when referring to classification on the investment schedules.
  5. ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts. Edits to the Preamble and rejects ASU 2018-12 for statutory accounting in SSAP No. 50, SSAP No. 51R, SSAP No. 52, SSAP No. 54R, SSAP No. 55, SSAP No. 56, SSAP No. 71 and SSAP No. 86.
  6. SSAP No. 101 – Q&A Updates – TCJA and SSAP No. 101 – Q&A Updates – DTA/DTL Offset In response to the federal Tax Cut and Jobs Act (TCJA) to incorporate necessary revisions to the Q&A section of SSAP No. 101—Income Taxes. Very minor editorial changes. Clarifies the admittance of deferred tax assets that can be offset by deferred tax liabilities, noting that scheduling is only required to the extent that it was necessary to use the reversal patterns of deferred tax items in determining the valuation allowance. Effective for financial accounting years ending Dec. 31, 2019.
  7. Appendix D—Nonapplicable GAAP Pronouncements: Revisions reject the following ASUs as not applicable:
    1. ASU 2015-08, Pushdown Accounting – Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115
    2. ASU 2019-02, Entertainment, Improvements to Accounting for Costs of Films and License Agreements for Program Materials

Adopted the following editorial revision to statutory accounting:

  1. SSAP No. 62R: Updated Exhibit D – Illustration of Asbestos and Pollution Counterparty Reporting Exception to match the current format of Property and Casualty Annual Statement Schedule F.
  2. Updated paragraph references to Schedule F, Part 8 to reference the current section of Property and Casualty Annual Statement Schedule F, Part 3.
  3. Deleted the paragraph in SSAP No. 84—Health Care and Government Insured Plan Receivables duplicating SSAP No. 4—Assets and Nonadmitted Assets.
  4. Updated language in the weather derivative exhibit to eliminate “proposed” wording.
  5. Updated the footnote regarding investments that are excluded from the wash sale disclosure.

Exposed the following substantive revisions to statutory accounting guidance:

  1. Revisions incorporate additional principle concepts in classifying investments as cash equivalents or short-term investments to prevent the “rolling” of certain investments.
  2. Revisions require a financial commitment or guarantee for a subsidiary, controlled or affiliated (SCA) entity to be recognized as a noncontingent guarantee liability.
  3. Revisions exclude collateralized fund obligations, and similar structures that reflect underlying equity interests, from the scope loan-backed and structured securities. The revisions also prevent existing equity assets from being repackaged as securitizations and reported as long-term bonds.
  4. Exposure requests additional comments, with referrals to the Financial Stability (EX) Task Force and the Life Actuarial (A) Task Force, on the reporting of insurance contracts that do not have mortality or morbidity risk.
  5. Revisions provide guidance clarifying reporting of prepayments to providers of claims and adjusting services, noting that the liabilities are not recognized as paid until the losses are paid to claimants or claims are adjusted.
  6. Revisions to SSAP No. 61R—Life, Deposit-Type and Accident and Health Reinsurance disclosure and revisions that expand the Appendix A-791, Life and Health Reinsurance (Appendix A-791) question-and-answer section regarding the applicability of Appendix A-791, treatment of contracts subject to the medical loss ratio (MLR), and question-and-answer regarding the treatment of group term life yearly renewable term (YRT) agreement.
  7. Revisions assess ASU 2014-17, Business Combinations – Pushdown Accounting for statutory accounting with a request for comments on whether pushdown shall be rejected, permitted for noninsurance entities or permitted only for U.S. Securities and Exchange Commission (SEC) registrants. Revisions that goodwill from a reporting entity’s acquisition of an SCA when pushdown is applied is subject to the goodwill admittance limitation.
  8. Revisions reject ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities.
  9. Revisions clarify levelized commissions guidance and provide clarifications on commissions that are based on policy persistency. The revisions note commission expense is accrued based on experience to date.
  10. Re-exposed revisions clarifying that “other” derivatives not used in hedging, income generation or replication shall be reported at fair value and do not qualify as admitted assets.
  11. Revisions require assignment of purchase price and goodwill to entities within downstream holding companies with disclosure of the allocation of goodwill.
  12. Revisions clarify that if an unalleviated going concern is noted in the audited financial statements or audit opinion, the SCA shall be nonadmitted.
  13. Revisions reject ASU 2019-05, Targeted Transition Relief for statutory accounting.
  14. Revisions clarify that only wash sales that cross reporting period-end dates are subject to the wash sale disclosure.
  15. Revisions clarify what should be captured in Supplemental Investment Risk Interrogatory Line 13: 10 Largest Equity Interests, noting that a look-through should only occur for non-diversified funds. The revisions also exclude Securities Valuation Office (SVO)-Identified Bond Exchange-Traded Funds (ETFs) and SVO-Identified investments with underlying characteristics of fixed-income investments from this equity listing.
  16. Revisions to Appendix A-785, Credit for Reinsurance adopted to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) related to the “Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance” (Covered Agreement).
  17. Revisions reject ASU 2019-03, Updating the Definition of Collections.
  18. Revisions reject ASU 2019-31, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made.
  19. Exposed editorial revisions to statutory accounting.

Statutory Accounting Blanks Working Group (SABWG)
The SABWG adopted the following revisions for incorporation into the statutory accounting annual and/or quarterly blank instructions:

  1. 2019-02BWG – For the VM-20 Reserves Supplement, Part 1, match the title under Part 1 to the title used in the blank. Add instructions to clarify the line reporting. Add clarifying column instructions to indicate that the due and deferred premium asset should be reported in accordance with VM-20, Requirements for Principle-Based Reserves for Life Products.
  2. 2019-03BWG – Add an NAIC Designation column for use with mutual funds to the annual Schedule D, Part 2, Section 2 and modify the instructions to reflect the addition. Modify the instructions for the NAIC Designation and Administrative Symbol column for the quarterly Schedule D, Part 3 and Part 4 to reflect capturing designations for mutual funds.
  3. 2019-04BWG – Remove the reference to “life and fraternal only” for Schedule BA General Instructions regarding investments that have the underlying characteristics of bonds or fixed instruments. Also remove the instructions reference for Schedule BA regarding the CUSIP Identification column and the NAIC Designation column. Add additional lines to the “Fixed or Variable Interest Rate Investments that Have the Underlying Characteristics of a Bond, Mortgage Loan or Other Fixed Income Instrument” and “Joint Ventures or Partnership Interests for Which the Primary Underlying Investments are Considered to Be Fixed Income Instruments” categories to distinguish between those reviewed and approved by the SVO and those that have not.
  4. 2019-05BWG – Add new instructions and illustration (to be data-captured) to Note 21, Other Items for life policies where the reporting entity is owner and beneficiary or has otherwise obtained rights to control the policy. The new disclosure will be Note 21I for life/fraternal and health and Note 21H for property and title.
  5. 2019-06BWG – Add a reference for structured settlements acquired by a reporting entity as an investment (where the company has acquired the legal right to receive payments) to the Schedule BA General Instructions in the “any other class of assets” definition.
  6. 2019-07BWG – Modify the instructions for Note 20, Fair Value to reflect changes adopted for SSAP No. 100R—Fair Value. These changes reflect disclosure modifications adopted from U.S. GAAP (ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement). The revisions do not change any of the disclosure templates.
  7. 2019-08BWG – Modify the instructions for Note 12, Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans to reflect changes adopted for SSAP No. 92—Postretirement Benefits Other Than Pensions and SSAP No. 102— Pensions.
  8. 2019-09BWG – Add a reference to include mortgage-referenced securities in the “U.S. Special Revenue and Special Assessment Obligations and All Non-Guaranteed Obligations of Agencies and Authorities of Governments and Their Political Subdivisions” category in the Investment Schedules General Instructions. Also delete Note 5O, Structured Notes, and modify the bond characteristics definition for Schedule D, Part 1.
  9. 2019-10BWG – Add instructions for determining the gain (loss) reported in column 18 and the prepayment penalty and/or acceleration fee amount in column 20 on Schedule D, Parts 4 and 5 for called bonds where consideration received is less than par.
  10. 2019-11BWG – Modify the instructions and table illustrations for Note 5F, Note 5G, Note 5H and Note 5I to reflect changes to SSAP No. 103R—Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. In addition, the formatting of some tables in the illustrations were changed to fit on the page.
  11. 2019-12BWG – Add a code for foreign mutual funds to Schedule D, Part 2, Section 2, Column 3. Add instruction for foreign open-end investment funds to be included as mutual funds in the Investment Schedules General Instructions.
  12. 2019-13BWG – Modify the instructions for question 2 of the Supplemental Investment Risks Interrogatories to exclude diversified foreign mutual funds. Add disclosure of the top 10 fund managers.
  13. 2019-14BWG – Modify the instructions and illustration for Note 8, Derivatives for disclosures adopted by SSAP No. 108—Derivatives Hedging Variable Annuity Guarantees. Add categories for variable annuity guarantees to the instructions for Schedule DB, Part A and Part B. Add an instruction and blank page for Schedule DB, Part E. Modify the instructions for the details of write-in for Line 25 of the asset page, as well as Line 25 and Line 34 of the life/fraternal liability page.
  14. 2019-15BWG – Modify the instructions for the Actual Cost column for Schedule D (Part 1, Part 3, Part 4 and Part 5) and Schedule DA to provide guidance for bonds that are received as a property dividend or capital contribution.
  15. 2019-16BWG – Add new column “YRT Mortality Risk Only” to the Analysis of Operations by Lines of Business (Summary, Individual Life and Group Life) and Analysis of Increase in Reserves During Year (Individual Life and Group Life) blank pages and instructions for YRT reinsurance business where the only risk included is mortality.
  16. 2019-17BWG – Add two new lines for affiliated bank loans to the parent, subsidiaries and affiliates category, and modify the existing lines for bank loans to reference unaffiliated for Schedule D, Part 1; Schedule DA; Schedule DL, Parts 1 and 2; and Schedule E, Part 2. The subtotal line for bank loans under the total bond category will be the sum of the affiliated and unaffiliated lines.

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