Statutory Accounting Principles Working Group (SAPWG) Adopts New Concept and Clarifications

The Statutory Accounting Principles (E) Working Group (SAPWG) met on March 16, 2024, in Phoenix, Arizona, for the Spring National Meeting. The group adopted a new SAP Concept and various SAP Clarifications that will be incorporated into the Accounting Practices and Procedures Manual.

New SAP Concept and Clarifications

The SAPWG adopted the following new SAP concept to statutory accounting guidance:

• Adopted revisions to Statement of Statutory Accounting Principles (SSAP) No. 34 — Investment Income Due and Accrued; SSAP No. 48 — Joint Ventures, Partnerships, and Limited Liability Companies; SSAP No. 93 — Low-Income Housing Tax Credit Property Investments; and SSAP No. 94R — Transferable and Non-Transferable State Tax Credits: Adopted new concepts as part of the new market tax credits project. The revisions provide new concept revisions for SSAP No. 93 and SSAP No. 94R, which expands the scope of both SSAPs, and consistency revisions to SSAP No. 34 and SSAP No. 48. The Working Group directed NAIC staff to sponsor a blanks proposal on the annual statement reporting categories for tax credit investment risk-based capital (RBC), issue a referral to the Life Risk Based Capital (E) Working Group to inform it of the planned reporting line changes, and draft an issue paper to document the discussions and revisions for the new market tax credit project. (Ref #2022-14). This new SAP concept is effective January 1, 2025.

The SAPWG adopted the following SAP clarifications to statutory accounting guidance:

• SSAP No. 21R – Other Admitted Assets: Adopted revisions to incorporate a new measurement method for residual interests, which incorporate industry’s proposal of an “effective yield with a cap” method, as well as a practical expedient to allow the “cost recovery” method. (Ref #2019-21). This clarification is effective January 1, 2025, but can be early adopted in 2024.
• SSAP No. 97 – Investments in Subsidiary, Controlled, and Affiliated Entities: Adopted revisions that update the language in SSAP No. 97, paragraph 24, on audits and admissibility to better align with guidance in paragraphs 26 and 27 on the look-through methodology. (Ref #2023-30).
• Annual Statement Instructions: Adopted revisions that will be forwarded as a proposal to the Blanks (E) Working Group to clarify that realized gains and losses on perpetual preferred stock and mandatory convertible preferred stock shall not be added to the interest maintenance reserve (IMR), regardless of NAIC designation, and shall follow the same concepts that exist for common stock in reporting through the asset valuation reserve (AVR). (Ref #2023-29).
• Appendix D — Nonapplicable GAAP Pronouncements: The following U.S. generally accepted accounting principles (U.S. GAAP) standards were rejected as they are not applicable to statutory accounting:
• Accounting Standards Update (ASU) 2023-03, Amendments to U.S. Securities and Exchange Commission (SEC) Paragraphs (Ref #2023-25).
• ASU 2023-04, Amendments to SEC Paragraphs — Cryptocurrency (Ref #2023-27).

There were also various SAP concepts and clarifications to statutory accounting guidance exposed for a public comment period ending May 31, 2024.

Next Steps for the Insurance Industry

We will continue to monitor development from the SAPWG when additional meetings are held. The next meeting of the SAPWG is scheduled for August 2024 in Chicago, Illinois. If you have questions about how these adoptions will affect your organization, we can help.