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NAIC 2016 Spring National Meeting Recap

May 27, 2016

Statutory Accounting Principles Working Group

The SAPWG considered each of the following items during the hearing. Each was adopted or rejected as noted below. The SAPWG meeting materials related to each of these items is available from the NAIC or your Eide Bailly representative.

  1. Ref #2014-25: SSAP No. 41R – Surplus Notes
  2. Ref #2015-19 and 2015-52: SSAP No. 1 – Accounting Policies, Risks & Uncertainties and Other Disclosures
  3. Ref #2016-01: INT 16-01 – ACA Section 9010 Assessment 2017 Moratorium as interpretation of SSAP No. 106
  4. Ref #2015-08 and #2015-25: Investments in Subsidiary, Controlled and Affiliated Entities
  1. Ref #2014-25: SSAP No. 41R – Surplus Notes (substantive)

    Revisions change the measurement guidance of surplus notes. These revisions provide that if the capital or surplus note has been rated by an NAIC credit rating provider (CRP) with a designation equivalent of NAIC 1 or NAIC 2, then it shall be reported at amortized cost. If the capital or surplus note is not CRP rated or has an NAIC designation equivalent of NAIC 3 through NAIC 6, then the balance sheet amount shall be reported at the lesser of amortized cost or fair value, with fluctuations in value reflected as unrealized valuation changes. Related Issue Paper No. 151—Valuation for Holders of Surplus Notes was also adopted and the Working Group agreed to send a referral to the Valuation of Securities (E) Task Force to incorporate the measurement changes within the Purposes and Procedures Manual of the NAIC Investment Analysis Office.

  2. Ref #2015-19 and 2015-52: SSAP No. 1 – Accounting Policies, Risks & Uncertainties and Other Disclosures (non-substantive)

    Adopted revisions clarify that the restricted asset disclosure shall be included in the annual financial statements and in the interim financial statements if significant changes have occurred. Adopted revisions also clarify the reporting requirements for permitted and prescribed practices.

  3. Ref #2016-01: INT 16-01 – ACA Section 9010 Assessment 2017 Moratorium as interpretation of SSAP No. 106 (non-substantive)

    Adopted revisions promote consistent application of the accounting guidance for reporting years 2016–2018 for the Section 9010 of the federal Affordable Care Act (ACA) fee. Statutory accounting specifies that the liability be accrued January 1st related to the estimated fee for that respective fiscal year. This fee is based on net written premium of the previous year. Surplus is segregated at the previous year end related to the accrued fee of the following January 1st expensed amount.

During a conference call hearing on February 22, 2016, the SAPWG adopted eight more nonsubstantive agenda items. Adopted items included:

  1. Ref #2015-40: SSAP No. 15 - Debt and Holding Company Obligations:

    Revisions reject ASU 2015-15 – Debt Issuance Costs Associated with Line of Credit Arrangements.

  2. Ref #2015-49: SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities

    Revisions clarify that ownership in an ETF or mutual fund does not represent ownership in an underlying entity within the scope of SSAP No. 97, unless ownership of an ETF actually represents control per SSAP No. 97.

  3. Ref #2015-54: SSAP No. 107 – Risk Sharing Provisions of the Affordable Care Act

    Revisions expand the risk corridors program rollforward disclosures to include recoverables by program benefit year and to also require additional information to improve the transparency of the recoverable amounts, specifically the amounts requested from the program and amounts reported gross and net of nonadmission.

Rejected the following GAAP revisions as not applicable to statutory accounting:

  1. Ref #2015-12: ASU 2015-12 Plan Accounting: Defined Benefit Pension Plans (Topic 960)

  2. Ref #2015-39: ASU 2015-13 Application of the Normal Purchases and Normal Sales Scope Exception of Certain Electricity Contracts with Nodal Energy Markets

  3. Ref #2015-42: ASU 2015-11 Inventory (Topic 330) Simplifying the Measurement of Inventory

  4. Ref #2015-48: EITF 90-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities; EITF 99-1 Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary; EITF 99-3 Application of Issue No. 96-13 to Equity Derivative Instruments that Contain Certain Provisions that Require Net Cash Settlement if Certain Events Outside the Control of the Issuer Occur

  5. Ref #2015-50: ASU 2014-06 Technical Corrections and Improvements Related to Glossary Terms

Statutory Accounting Principles Working Group

The SAPWG considered and exposed each of the following items during its meeting. The SAPWG meeting materials related to each of these items is available from the NAIC or your Eide Bailly representative.

Exposed substantive revisions to statutory accounting:

  1. Ref #2016-02: SSAP No. 22 – Leases

    ASU 2016-02: Leases – The working directed staff to expose for comment three options for accounting of operating and finance leases under SAP:
    • Maintain existing statutory accounting guidance in SSAP No. 22—Leases for the treatment of operating and financing leases, with potential new disclosures to capture information on the lease asset and lease liability that would be required under GAAP.
    • Recognize the lease asset and lease liability, but requiring nonadmittance of the lease asset as the right of use asset is not available for policyholder obligations pursuant to SSAP No. 4—Assets and nonadmitted assets. This would result in adopting ASU 2016-02 with modification.
    • Recognize lease assets and lease liabilities for a lessee’s operating and financing leases. Although this would result in adopting ASU 2016-02 with some modifications, this option would allow the lease asset to be an admitted asset under SAP.

  2. Ref #2015-47: SSAP No. 51 – Life Contracts

    Proposes revisions to the life insurance guidance to incorporate references to the Valuation Manual and to facilitate the implementation of principle-based reserving (PBR).

  3. Ref #2015-02: SSAP No. 103 – Short Sales – Issue Paper

    Exposed a revised Issue Paper No. 152—Short Sales and substantively revised SSAP No. 103R, proposing accounting guidance on short sales, as well as guidance for secured borrowing transactions.

  4. Ref #2016-03: Variable Annuities

    Requests comments on concepts for a “special accounting provision” drafted in response to the charge to consider “hedge accounting treatment” for certain limited derivatives related to variable annuity products that do not meet hedge effectiveness requirements.

Exposed the following non-substantive revision to statutory accounting:

  1. Ref #2016-09, #2016-11 and #2015-52: SSAP No. 1
  2. Ref #2015-46: SSAP No. 3
  3. Ref #2015-41: SSAP No. 26
  4. Ref #2016-05: SSAP No. 30
  5. Ref #2016-06: SSAP No. 26, SSAP No. 30, SSAP No. 32, SSAP No. 43R and SSAP No. 100
  6. Ref #2015-23: SSAP No. 2015-23 and SSAP No. 43R
  7. Ref #2015-21: SSAP No. 55
  8. Ref #2015-43 and #2015-51: SSAP No. 86
  9. Ref #2016-08: SSAP No. 92
  10. Ref #2015-25 and #2016-04: SSAP No. 97
  11. Ref #2016-07: SSAP No. 101
  12. Ref #2016-10: Appendix A-820
  13. Ref #2016-12 and #2016-13: Appendix F-Policy Statements
  14. Ref #2015-27: Investment Schedules