This report summarizes all adopted agenda items of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) during 2022 or first effective for 2022 reporting which resulted in statutory accounting principles (SAP) revisions. Insurance organizations should take note of these changes as they may significantly affect their accounting in 2022 and beyond. The agenda items are organized by adoption date. All adopted revisions to SAP noted below are considered effective immediately after adoption by SAPWG unless specifically noted otherwise. The summaries below come from our article series on SAPWG developments.
SAPWG continued its work on the Bond Project throughout 2022. Insurance organizations should review the exposed revisions which include significant revisions to the definition of a bond and bond reporting. These revisions have been exposed with a proposed effective date of January 1, 2025.
Ref #2021-15: SSAP No. 43R – Residual Tranches
SSAP No. 43R – Loan-Backed and Structured Securities
Nonsubstantive revisions to SSAP No. 43R clarify that residual tranches shall be reported on Schedule BA-Other Long-Term Invested Assets and valued at the lower of cost or fair value. The revisions were effective December 31, 2022, with early adoption permitted. These revisions were made to address inconsistencies in reporting that came to light through the ongoing principles-based bond project and are an interim action in advance of the adoption of the principles-based bond project.
The revisions add a new footnote within paragraph 26 defining residual tranches as securitization tranches and beneficial interests that reflect loss layers without any contractual payments, whether principal or interest, or both.
Ref #2021-14: Policy Statement Terminology Change – Substantive & Nonsubstantive
NAIC Policy Statement on Maintenance of Statutory Accounting Principles
Previous discussions highlighted that the statutory accounting terminology of “substantive” and “nonsubstantive” to describe statutory accounting revisions being considered by SAPWG to the AP&P Manual could be misunderstood by users that are not familiar with the specific definitions and intended application of those terms. To avoid the incorrect perception that these terms may reflect the degree of financial impact to companies based on their common usage, the Financial Condition (E) Committee requested that SAPWG consider updating these terms to prevent future misunderstandings. Under the adopted revisions, a revision that would have previously been considered “substantive” would be referred to as a “New SAP Concept” and a revision that would have previously been considered as “nonsubstantive” would be referred to as a “SAP Clarification.” This agenda item revises only the policy statement referenced above. Agenda item 2021-26EP, discussed below, addresses updating of these terms more comprehensively in the AP&P Manual due to the extent that the terms “substantive” and “nonsubstantive” are currently used throughout the AP&P Manual. These new terms will be used on a go-forward basis only. The effective date of January 1, 2022 was intended to provide a clear date for which new items presented to SAPWG will be reflected with the new terminology.
Ref #2021-18: VM-21 Scenario Consistency Update
SSAP No. 108 – Derivatives Hedging Variable Annuity Guarantees
Adopted revisions, effective December 31, 2021, provided consistency with VM-21: Requirements for Principle-Based Reserves for Variable Annuities (VM-21) with regard to the amortization of deferred assets and deferred liabilities by 1) removing reference to the “standard scenario” and 2) adding reference to the conditional tail expectation (CTE) 70 as well as reference the VM-21’s guidance which allows a reporting entity to choose the company specific market path or CTE with prescribed assumptions to calculate prescribed projection amounts for reserve purposes.
Ref #2021-31: Life Reinsurance Disclosure Clarifications
SSAP No. 61R - Life and Health Reinsurance
Adopted revisions, effective December 31, 2021, to SSAP No. 61R clarify life reinsurance disclosures which were new for 2020 reporting in response to questions from the American Institute of Certified Public Accountants (AICPA) NAIC Task Force. The revisions, summarized below, narrow the scope of the disclosures, and clarify what is required in the disclosures.
Ref #2021-22: Schedule D-6-1, Supplemental Reporting
SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities
SAPWG adopted this agenda item, which does not include statutory revisions, to express support for the Blanks (E) Working Group (BWG) exposure 2022-02BWG which expanded the reporting of SCA investments in Schedule D-6-1. The supplemental data to be captured is consistent with current requirements in SSAP No. 97.
Ref #2021-23: SSAP No. 43R – Financial Modeling – Updated Guidance
SSAP No. 43R - Loan-backed and Structured Securities
Adopted revisions reflect updated NAIC designation/NAIC designation category guidance, which was adopted on October 20, 2021, by the Valuation of Securities (E) Task Force (VOSTF), for residential mortgage-backed securities and commercial mortgage-backed securities. The agenda item also affirms the current practice of including summarized modeling guidance in SSAP No. 43R, which will be updated for any subsequent modeling modifications when adopted by the VOSTF.
Ref #2021-24: General Interrogatory for Cryptocurrencies
SAPWG adopted this agenda item, which does not include statutory revisions, to express support for the BWG exposure 2022-01BWG which added a new general interrogatory to the annual blanks to require the disclose of when cryptocurrencies are directly held or permitted for the remittance of premiums.
Ref #2021-26EP: Editorial Updates
Preamble, Volume I and II’s Table of Contents, and Appendix F
Agenda item 2021-14, adopted in December 2021, addressed updating the source definition of the terms “substantive” and “nonsubstantive”. This agenda item adopts revisions to all remaining uses of these terms in the current AP&P manual with the Preamble, Volume I and II’s Table of Contents and the Summary of Changes, and Appendix F.
SAPWG previously adopted agenda item 2021-14 in December 2021 which revised terminology within the AP&P Manual, a revision that would have previously been considered “substantive” is now referred to as a “New SAP Concept” and a revision that would have previously been considered as “nonsubstantive” is now referred to as a “SAP Clarification.”
Ref #2021-27: ASU 2021-04 - Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
SSAP No. 72 - Surplus and Quasi-Reorganization
Adopted revisions incorporate guidance from ASU 2021-04 to clarify that an entity shall treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option as an exchange of the original instrument for a new instrument. Adopted revisions reject other elements (namely guidance related to if the modification/exchange is related to a debt instrument or line-of-credit) of ASU 2021-04 for statutory accounting.
Ref #2021-28: ASU 2021-03, Intangibles – Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events
SSAP No. 68 - Business Combinations and Goodwill
Adopted revisions to SSAP No. 68 reject ASU 2021-03 for statutory accounting.
Ref #2021-29: ASU 2021-05 - Variable Lease Payments
SSAP No. 22R - Leases
Adopted revisions to SSAP No. 22R reject ASU 2021-05 for statutory accounting.
Ref #2021-30: ASU 2021-06 – Amendments to SEC Paragraphs
Adopted revisions to Appendix D reject ASU 2021-06 as not applicable to statutory accounting.
Ref #2021-21: Related Party Reporting
SSAP No. 25 - Affiliates and Other Related Parties and SSAP No. 43R – Loan-Backed and Structured Securities
This agenda item adopts SAP clarification revisions to SSAP No. 25 and SSAP No. 43R to clarify application of the existing affiliate definition and to incorporate new disclosure requirements for investments acquired through, or in, related parties, regardless of if they meet the affiliate definition. A footnote was added in SSAP No. 43R to clarify, consistent with SSAP No. 97, that investments in an exchange traded fund (ETF) or a mutual fund (as defined by the SEC) does not reflect ownership in an underlying entity, regardless of the ownership percentage the reporting entity (or the holding company group) has of the ETF or mutual fund unless ownership of the ETF actually results in “control” with the power to direct or cause the direction of management of an underlying company.
The additional reporting elements will be captured outside of the current affiliate reporting requirements. These new reporting requirements, effective December 31, 2022, will occur through a reporting code, detailed below, and new column in the yearend investment schedules.
The agenda item does not intend to make any changes to what is reported as affiliated or unaffiliated or the reporting lines in the investment schedules.
Ref #2022-03: Premium Adjustments Allocated to Jurisdictions
This agenda item sponsored and forwarded a proposal to the Blanks Working Group, and did not result in SAP revisions. The Blanks revisions modified the instructions for Schedule T to clarify that all premium adjustments (both increases and decreases), including but not limited to Affordable Care Act premium adjustments related to the risk adjustment program, shall be allocated as premium in the respective jurisdiction.
Ref #2022-08: INT 22-01T: Freddie Mac When-Issued K-Deal (WI Trust) Certificates
SSAP No. 43R - Loan-Backed and Structured Securities
This statutory accounting interpretation clarifies that investments in the Freddie Mac When-Issued K-Deal program shall be captured in scope of SSAP No. 43R from initial acquisition.
Ref #2021-20: Effective Derivatives – ASU 2017-12
SSAP No. 86 - Derivatives
SAPWG previously adopted agenda item 2018-30: SSAP No. 86 – Hedge Effectiveness Documentation which contained limited scope revisions in consideration of ASU 2017-12: Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. Agenda item 2018-30 noted further consideration of ASU 2017-12 would subsequently occur. Regulators and industry representatives requested further consideration of ASU 2017-12 to address the disconnect between U.S. GAAP and SAP regarding certain types of effective hedging relationships. This agenda item adopts revisions to SSAP No. 86, classified as new SAP concepts, on assessing hedge effectiveness as well as new guidance on permitted excluded components and the appropriate measurement for those excluded items. The revisions are effective January 1, 2023, with early application permitted. These revisions adopt, with modification, U.S. GAAP.
Ref #2022-01: Conceptual Framework - Updates
Preamble, SSAP No. 4 - Assets and Nonadmitted Assets and SSAP No. 5R - Liabilities, Contingencies and Impairment of Assets
This agenda item summarizes each of the FASB’s two new chapters of its conceptual framework which FASB issued in December 2021, and reviews their potential impact on statutory accounting.
SAPWG adopted revisions to SSAP No. 4, an issue paper which documents the changes in definition of an asset and rationale for why the revisions are considered SAP clarifications in nature, and the Preamble to update reference to a superseded FASB concept statement.
On December 13, 2022, SAPWG re-exposed the liabilities guidance and the related Issue Paper No. 16X - Updates to the Definition of a Liability, intending to provide additional time for industry to review the changes. SAPWG also directed NAIC staff to work with interested parties on proposed clarifying language.
Ref #2022-02: SSAP No. 48 – Alternative Valuation of Minority Ownership Interests
SSAP No. 48 - Joint Ventures, Partnerships and Limited Liability Companies
Revisions to SSAP No. 48 clarify that when valuing minority ownership interests, if U.S. GAAP financial statements are not available, an insurer is allowed to use audited U.S tax equity financial statements and that the U.S. tax basis audit is to reside at the investee level.
Ref #2022-04: ASU 2021-10, Government Assistance
SSAP No. 24 - Discontinued Operations and Unusual or Infrequent Items
This agenda item incorporates certain disclosures from ASU 2021-10, which will supplement existing disclosures, to require that if the unusual or infrequent item is as the result of government assistance, the transaction will require identification as well as a description of the terms and provisions of the assistance received.
Ref #2022-05: ASU 2021-09, Leases, Discount Rate for Lessees
SSAP No. 22R - Leases
Revisions to SSAP No. 22R reject ASU 2021-09 for statutory accounting.
Ref #2022-06: ASU 2021-07, Compensation – Stock Compensation
SSAP No. 104R - Share-Based Payments
SAP clarification revisions to SSAP No. 104R incorporate the referenced ASU’s practical expedient for the current price input, a required component for the option-pricing models which are utilized in the determination of fair value for share-based payments. This is consistent with previous SAPWG decisions to adopt practical expedients regarding option-pricing modeling input permitted by FASB.
Ref #2022-07: ASU 2021-08, Business Combinations
SSAP No. 47 - Uninsured Plans and SSAP No. 68 - Business Combinations and Goodwill
Revisions to SSAP No. 47 and SSAP No. 68 reject ASU 2021-08 for statutory accounting.
INT 22-02: Third Quarter 2022 through First Quarter 2023 Reporting of the Inflation Reduction Act - Corporate Alternative Minimum Tax
SSAP No. 9 - Subsequent Events and SSAP No. 101 - Income Taxes
On October 24, 2022, SAPWG adopted INT 22-02 Third Quarter 2022 Reporting of the Inflation Reduction Act – Corporate Alternative Minimum Tax (CAMT) which provided accounting and disclosure guidance for the third quarter 2022 financial statements related to the CAMT. The INT noted that because a reporting entity is unlikely to be able to make a reasonable estimate, the INT provides exceptions to reporting for Sept. 30, 2022, and also included disclosure information. INT 22-02 was originally to be automatically nullified on Dec. 1, 2022.
During the Fall 2022 National Meeting, SAPWG adopted revisions to INT 22-02 (including its name) to extend it to December 31, 2022, and first quarter 2023 statutory financial statements. The main provisions of the INT are:
NAIC staff will continue to coordinate the development of CAMT guidance, expected to be provided after first quarter 2023. INT 22-02 will be automatically nullified on June 15, 2023.
Ref #2021-25: Leasehold Improvements After Lease Termination
SSAP No. 19 - Furniture, Fixtures, Equipment and Leasehold Improvements and SSAP No. 73 - Health Care Delivery Assets and Leasehold Improvements in Health Care Facilities
SAPWG previously exposed SAP clarification revisions to SSAP No. 19 and SSAP No. 73 to conform the guidance for leasehold improvements to the treatment provided in SSAP No. 40R - Real Estate Investments in response to questions received about the treatment of leasehold improvements in
situations where a leased property is purchased by the lessee during the lease term. The adopted revisions clarify that amortization of leasehold improvements will immediately end when a lease is terminated and require that any remaining, unamortized leasehold improvement balance be immediately expensed. The adopted revisions also include a limited, specific exclusion, in SSAP No. 73 - Health Care Delivery Assets and Leasehold Improvements in Health Care Facilities that allows leasehold improvements necessary for the functionality of specific health care delivery assets to be excluded in some cases from the purchase cost of the real estate.
Ref #2022-09: ASU 2022-01: Fair Value Hedging – Portfolio Layer Method
SSAP No. 86 - Derivatives
Adopted revisions, classified as a new SAP concept, to SSAP No. 86 incorporate elements of ASU 2022-01 for portfolio layer method hedges, as well as on the U.S. guidance for partial term derivatives issued in ASU 2017-12. These revisions are effective January 1, 2023, with early adoption permitted.
An issue paper has been prepared and exposed for comment to detail statutory accounting revisions related to derivatives for historical purposes.
Ref #2022-10: ASU 2022-02: Troubled Debt Restructurings and Vintage Disclosures
SSAP No. 36 - Troubled Debt Restructuring
The referenced ASU eliminates prior U.S. GAAP guidance for troubled debt restructurings (TDRs) by creditors and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan as losses are captured in the allowance for credit losses under ASU 2016-13: Measurement of Credit Losses on Financial Instruments. ASU 2022-02 expands U.S. GAAP disclosures for modifications provided to debtors experiencing financial difficulty and revises the ASU 2016-13 vintage gross write-off disclosures for public business entities. Consideration of ASU 2016-13 is still pending statutory accounting review by SAPWG.
Adopted revisions to SSAP No. 36 retain existing guidance, identify the rejection of ASU 2022-02, and detail the GAAP to SAP differences for the accounting of TDRs for creditors.
Ref #2022-13: Related Party - Footnote Updates
SSAP No. 25 - Affiliates and Other Related Parties and SSAP No. 97 - Investments in Subsidiary, Controlled and Affiliated Entities
Following on from agenda item 2021-21, adopted on May 24th, this agenda item adopts SAP clarification revisions to SSAP No. 25 and SSAP No. 97 to incorporate language to exempt foreign open-end investment funds from the look-through provisions included in SSAP No. 25.
To learn more on these updates, please contact our team.