The Fall NAIC meeting was held December 10-13 in Miami, Florida. There were various substantive revisions to SSAP No. 2R for reclassifications of money market mutual funds, SSAP No. 35R – Guaranty Funds and other assessments and various other substantive and non-substantive revisions. The Cybersecurity Task Force meeting was widely attended but no significant developments were noted.
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:
- Statement of Statutory Accounting Principles (SSAP) No. 35R—Guaranty Fund and Other Assessments. Effective Jan. 1, 2017, allow expected renewals of short-term contracts to be considered in determining the assets recognized from accrued guaranty fund liability assessments. The revisions result with more comparable accounting treatment between life insurers and health insurers subject to similar retrospective guaranty assessments for long-duration products. The Working Group also directed NAIC staff to prepare an agenda item to consider the proposal for discounting guaranty fund reserves for subsequent consideration.
- SSAP No. 2R—Cash, Cash Equivalents, Drafts, and Short-Term Investments and new Issue Paper No. 155—Classification of Money Market Mutual Funds as Cash Equivalents. Effective Dec. 31, 2017, reclassify money market mutual funds from short-term investments to cash equivalents and require all money market mutual funds be reported at fair value (allowing net asset value as a practical expedient). Any unrealized gains and losses accounted for under SSAP No. 7—Asset Valuation Reserve and Interest Maintenance Reserve or recorded as a direct credit or charge to surplus (non-AVR filers).
- SSAP No. 54R—Individual and Group Accident and Health Contracts and new Issue Paper No. 154—Implementation of Principle-based Reserving. Revisions add references to the Valuation Manual for health reserving requirements and update the change in valuation basis guidance for health reserves to reflect the use of own company experience required in Actuarial Guideline XLVII—The Application of Company Experience in the Calculation of Claim Reserves Under the 2012 Group Long-Term Disability Valuation Table (AG 47) and Actuarial Guideline L—2013 Individual Disability Income Valuation Table (AG 50).
Adopted the following non-substantive revisions to statutory accounting guidance (effective upon adoption unless date specifically noted):
- SSAP No. 23—Foreign Currency Transactions and Translations: Adopt with modification Accounting Standards Update (ASU) 2013-05. Modifications reflect the statutory accounting definition of a controlling interest as well as specified statutory reporting.
- SSAP No. 84—Health Care and Government Insured Plan Receivables: Revisions clarify that receivables must originate from the government in order to be admitted when more than 90 days past due. Certain pharmacy receivables may qualify to be evaluated under the risk sharing provisions in paragraph 20 rather than paragraph 10, which may reduce the amount of non-admitted receivables in certain situations.
- SSAP No. 86—Derivatives: Revisions incorporate a definition for notional, with a Jan. 1, 2017, effective date. Reporting entities determining notional in accordance with the adopted definition shall continue to follow that approach for year-end 2016.
- SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated (SCA) Entities: Revisions provide filing exceptions for non-admitted, zero-value and immaterial SCA entities and clarify the filing process.
- SSAP No. 103R—Transfers and Servicing of Financial Assets and Extinguishment of Liabilities: Revisions incorporate enhanced disclosures for repurchase and reverse-repurchase transactions, with an effective date of Dec. 31, 2017.
Exposed the following substantive revisions to statutory accounting guidance
- SSAP No. 26—Bonds: Requested regulators and the industry to provide information on the current practices of allocating gains and losses between the AVR and the interest maintenance reserve (IMR), as well as information on the recognition of other-than-temporary impairment (OTTI) if the security is sold in the same reporting period in which the OTTI is first identified.
- SSAP No. 43R—Loan-Backed and Structured Securities: Key revisions proposed 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 SSAP.
- Revisions to clarify admitted asset requirements.
Exposed the following non-substantive revisions to statutory accounting guidance:
- SSAP No. 37—Mortgage Loans: Clarifies that a reporting entity providing a mortgage loan as a “participant in a mortgage loan agreement” shall consider the mortgage loan in scope of SSAP No. 37.
- SSAP No. 30—Investment in Common Stock, SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies and SSAP No. 97: Adopts with modification ASU 2016-07 – Simplifying the Transition to the Equity Method of Accounting and provides guidance when an investment qualifies (or no longer qualifies) for the equity method.
- SSAP No. 69—Statement of Cash Flow: Adopts ASU 2016-15 – Classification of Certain Cash Receipts and Cash Payments to improve consistency in statutory accounting principles (SAP) reporting, as well as minimize differences between SAP and U.S. generally accepted accounting principles (GAAP) on cash flow classifications.
- SSAP No. 101—Income Taxes: Adopts with modification ASU 2016-16 – Intra-Entity Transfers of Assets Other than Inventory and requires reporting entities to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.
- INT 01-25—Accounting for U.S. Treasury Inflation-Indexed Securities: Restricts foreign inflation-indexed securities from using the guidance in INT 01-25, requiring the security to follow the applicable SSAP (e.g., SSAP No. 26) without recognition of unrealized gains or losses based on the inflation factor.
- Appendix A-791—Life and Health Reinsurance Arrangements: Incorporates 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 need to be signed by all parties to be effective.
- Adopted a comment letter to the Financial Accounting Standards Board (FASB) responding to the proposed ASU for long-duration insurance contracts. This comment letter will be submitted to the FASB after approval from the chair of the Accounting Practices and Procedures (E) Task Force and the chair of the Financial Condition (E) Committee.
The material in this update was summarized from the National Association of Insurance Commissioners fall meeting of the Statutory Accounting Principles (E) Working Group summary report.