Insurance industry professionals should be aware of the latest updates in Statutory Accounting Principles (SAP) impacting the industry. The Statutory Accounting Principles Working Group (SAPWG) met on December 13, 2022 and they adopted one new SAP Concept, three SAP clarifications and one interpretation that will be incorporated into the Accounting Practices and Procedures Manual.
New SAP Concept
The SAPWG adopted the following new SAP concept to statutory accounting guidance:
- SSAP No. 86 – ASU 2022-01 – Fair Value Hedging – Portfolio Layer Method – Revisions adopt, with modification, derivative guidance from ASU 2017-12, Derivatives and Hedging and ASU 2022-01, Fair Value Hedging – Portfolio Layer to incorporate the portfolio layer method and partial-term hedges for statutory accounting.
This new SAP concept is effective January 1, 2023 with early adoption permitted. These revisions shall be applied prospectively to qualifying new hedges.
The SAPWG adopted the following SAP clarifications to statutory accounting guidance:
- SSAP No. 19 and SSAP No. 73 – Leasehold Improvements After Lease Termination – Revisions clarify that amortization of leasehold improvements will immediately end when a lease is terminated and requires that any remaining, unamortized leasehold improvement balance be expensed immediately, unless limited exceptions are met. This clarification is effective immediately.
- SSAP No. 36 – ASU 2022-02 – Troubled Debt Restructurings and Vintage Disclosures – Revisions reject ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures and notes that retained guidance reflects superseded U.S. GAAP. This clarification is effective immediately.
- SSAP No. 25 and SSAP No. 97 – Related Parties – Footnote Updates – Revisions identify foreign open-end investment funds as a fund in which ownership percentage is not deemed to reflect control unless the entity actually controls with the power to direct the underlying company. This clarification is effective immediately.
- SSAP No. 9 and SSAP No. 101 – Interpretation (INT) 22-02: Third Quarter 2022 through First Quarter 2023 Reporting of the Inflation Reduction Act – Corporate Alternative Minimum Tax – Revisions extend INT 22-02 for December 31, 2022, and Q1 2023 statutory financial statements.
This interpretation provides an exception that does not require entities to assess valuation allowance and deferred tax asset impacts, tax estimates from the Inflation Reduction Act corporate alternative minimum tax for Q3 2022 through Q1 2023. It also provides subsequent event exceptions and disclosures. This interpretation is effective immediately.
Impact to Insurance Organizations
While the immediately effective changes from the December 2022 SAPWG meeting are just SAP clarifications and interpretations, we will continue to monitor developments from the SAPWG for future updates.
Our insurance industry advisors are available to address any questions or concerns you may have on how these SAP changes will specifically affect your organization.