Accounting update from the NAIC Spring 2014 meeting

The National Association of Insurance Commissioners (NAIC) 2014 Spring National Meeting was held in Orlando, FL. A number of issues and statutory accounting changes, both substantive and nonsubstantive, were addressed over the course of the meeting. Highlights from some of the working group and committee meetings are summarized below.

The following key points were discussed at the joint meeting of the Emerging Accounting Issues (E) Working Group (EAIWG) and the Statutory Accounting Principles (E) Working Group (SAPWG):

Affordable Care Act

The Working Groups continued discussion around INT 13-04: Accounting for the Risk Sharing Provisions of the Affordable Care Act and Ref #2013-28: Risk Sharing Provisions of the Affordable Care Act. The Affordable Care Act (ACA) imposes fees and premium stabilization provisions on health insurance insurers offering commercial health insurance.

INT 13-04, exposed by the EAIWG in December 2013 and re-exposed with modifications on February 12, 2014, recommends accounting for three programs that take effect in 2014 known as risk adjustment, reinsurance, and risk corridors. The accounting issues being addressed are how to account for the various components of the risk sharing provisions of the ACA and which of the existing statements of statutory accounting principles are to be applied for the various risk sharing provisions of the ACA. On March 19, 2014, a conference call was held amongst the EAIWG, at which point further modifications were made to incorporate nonadmission language related to the risk adjustment program (particularly in response to uncertainties in the estimation process during 2014) and risk corridors calculation. At the National Meeting, the EAIWG discussed the nonadmission modifications and directed NAIC staff to prepare a new Statement of Statutory Accounting Principle (SSAP) for discussion in late April / early May. Following the planned discussion, the EAIWG hopes to move forward with exposure of a proposed SSAP.

Ref #2013-28 was re-exposed by the SAPWG, which incorporated further clarification of the assets, liabilities, and revenue elements for each of the three programs that should be disclosed in the financial statements. The re-exposed document also includes a proposed roll forward of the prior year ACA risk sharing provisions specified asset and liability balances. The comment deadline of the exposure is May 8, 2014.

Adopted items

The SAPWG reviewed and adopted a number of non-contested items:

Ref #2013-29: Clarification of Merger Footnote

  • Nonsubstantive revisions to SSAP No. 3 and SSAP No. 68 clarify that the disclosure exemption for shell companies did not change the January 1 date used to determine how the cumulative effect in accounting principle is measured.

Ref #2013-31: Clarification of Appendix B Included in SSAP No. 97

  • Nonsubstantive revisions to SSAP No. 97 clarify that investments in downstream holding companies are calculated per paragraph 21.

Ref #2013-32: ASU 2013-10: Inclusion of the Fed Funds Swap Rate as a Benchmark Interest Rate

  • Nonsubstantive revisions to SSAP No. 86 incorporate the GAAP definition of a benchmark interest rate, and delete prior guidance indicating that entities should designate the same benchmark interest rate as the risk being hedged for similar hedges.

Ref #2013-34: ASU 2012-04: Technical Corrections and Improvements

  • Nonsubstantive revisions to Issue Paper No. 99 reject ASU 2012-04 as not applicable to statutory accounting.

Ref #2013-35: AICPA Statement of Position 09-1, Performing Agreed-Upon Procedures Engagements That Address the Completeness, Accuracy, or Consistency of XBRL-Tagged Data

  • Nonsubstantive revisions to Issue Paper No. 99 reject SOP 09-1 as not applicable to statutory accounting, as well as update the Preamble and Appendix D to identify that AICPA Statements of Position will no longer be reviewed for statutory accounting.

Ref #2013-37: ASU 2011-09: Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan

  • Nonsubstantive revisions to SSAP No. 92 and SSAP No. 102 adopt by reference ASU 2011-09 and incorporate limited additional disclosures.

Exposed for comment

The SAPWG also exposed the following items for comment, with a deadline of May 8, 2014:

Ref #2014-01: ACA Assessments

Ref #2014-02: Disclosure for Structured Notes

Ref #2014-03: ASU 2013-12: Definition of a Public Business Entity, An Addition to the Master Glossary

Ref #2014-04: Inconsistent Audit Requirement in SSAP No. 16R

Ref #2014-05: ASU 2014-05: Service Concession Arrangements

Ref #2014-06: SSAP No. 57: Title Insurance Premium Classifications

Ref #2014-07: SSAP No. 11: Clarification of Adopted GAAP

Ref #2014-08: Reference SSAPs on Issue Papers

Ref #2014-09: ASU 2014-03: Derivatives and Hedging – Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach

Read more about these exposed items >

Multi-state insurer definition

The Financial Regulation Standards and Accreditation (F) Committee continued discussion on the definition of “multi-state insurer” for accreditation purposes. During the NAIC 2013 Fall National Meeting the Committee discussed whether the definition of multi-state insurer (included in the preambles of Part A and Part B of the NAIC Policy Statement on Financial Regulation Standards) is unclear as to whether reinsurers organized under captive laws and reinsuring business written in other states are considered multi-state under the accreditation program and would therefore be subject to the Part A: Laws and Regulations and Part B: Regulatory Practices and Procedures accreditation standards. NAIC staff submitted proposed revisions to the preambles that would add a definition of “multi-state reinsurer” and clarify circumstances under which such a reinsurer would be subject to the accreditation standards. The Committee exposed the revisions for comment, with a deadline of May 19, 2014.

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