This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) since the Summer 2022 National Meeting.
SAPWG discussed a variety of topics including the proposed bond definition and Schedule D reporting, hedging, the Inflation Reduction Act, and more.
Insurance organizations should take note of these changes as they may significantly affect their accounting in 2022 and beyond.
All adopted revisions to statutory guidance noted below are classified as Statutory Accounting Principle (SAP) clarifications and considered effective immediately after adoption by SAPWG, unless specifically noted otherwise.
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 #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 to detail statutory accounting revisions related to derivatives for historical purposes. This issue paper is discussed in the section below for exposed revisions to statutory guidance.
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.
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.
The public comment period for all exposed agenda items noted below ends February 10, 2023.
Ref #2019-21: Proposed Bond Definition
SSAP No. 26R – Bonds and SSAP No. 43R - Loan-Backed and Structured Securities
SAPWG began the “Investment Classification Project” in 2013 with the intent to undertake a comprehensive project to review the investment SSAPs. The purpose was to clarify definitions, scope and the accounting methods and related reporting. On March 2, 2022, SAPWG exposed an updated version of the principles-based bond proposal and a draft issue paper. On July 18, 2022, SAPWG directed NAIC staff to incorporate further revisions into these documents. During the Summer National Meeting, SAPWG exposed the updated bond definition, issue paper and revisions, classified as new SAP concepts, to SSAP No. 26R and SSAP No. 43R.
On November 16, 2022 SAPWG re-exposed revisions to SSAP No. 26R and SSAP No. 43R, and exposed revisions to various SSAPs, including:
The revisions in the re-exposure include proposed transition guidance, which includes identification of January 1, 2025, as the proposed effective date.
Readers are encouraged to review these documents on the SAPWG website for further information. The documents detailing the proposed revisions to SSAP No. 26R and SSAP No. 43R each include a section summarizing changes since the prior exposure.
Ref #2019-21: Bond Proposal Reporting Revisions
SSAP No. 26R – Bonds and SSAP No. 43R - Loan-Backed and Structured Securities
During the Spring 2022 National Meeting, SAPWG directed NAIC Staff to proceed with developing a more robust illustration of the proposed changes intended to provide more granularity of investments on Schedule D-1: Long-Term Bonds. On July 18, 2022, SAPWG exposed for comment two documents, which detailed the proposed revisions to Schedule D-1. SAPWG noted that if these edits were supported, a full proposal of all necessary revisions to Schedule D-1 as well as other schedules would be subsequently exposed by SAPWG. During the Fall National Meeting SAPWG:
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.
During the Summer National Meeting, SAPWG:
During the Fall National Meeting, 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 #2022-11: Collateral for Loans
SSAP No. 21R - Other Admitted Assets
Re-exposed revisions to SSAP No. 21R clarify that the invested assets pledged as collateral for admitted collateral loans must qualify as admitted invested assets.
Ref #2022-12: Review of INT 03-02: Modification to an Existing Intercompany Pooling Arrangement
INT 03-02: Modification to an Existing Intercompany Pooling Arrangement,
INT 03-02 addresses the valuation of bonds in instances when bonds are used instead of cash for the payment among affiliates for amounts due on modifications to existing intercompany reinsurance pooling contracts. The recent deliberations on related party transactions highlighted a discrepancy between INT 03-02 and SSAP No. 25. This agenda item proposes to nullify INT 03-02, as it is inconsistent with SSAP No. 25 guidance regarding economic and non-economic transactions between related parties. The guidance in INT 03-02 can result in unrecognized gains (dividends) or losses through the use of statutory book valuation when using assets (bonds) to make payments to affiliates for modifications to existing intercompany reinsurance pooling agreements. SAPWG believes the treatment of transfers of assets between affiliates should be consistent for all intercompany transactions and that there is not a compelling need for a difference when valuing assets for intercompany reinsurance transactions.
SAPWG re-exposed this item during the Fall National Meeting to allow for further discussion.
Ref #2022-14: New Market Tax Credits / Tax Equity Investments
SSAP No. 93—Low Income Housing Tax Credit Property Investments
Exposed agenda item, classified as a new SAP concept, along with a discussion document on potential statutory accounting concepts for tax equity investments (i.e., expansion of SSAP No. 93) along with potential discussion elements and questions. The discussion document recommends that the guidance to be developed not name specific designs or other specific tax credits so that it can be applicable for all qualifying tax equity investments. SAWPG anticipates that SSAP No. 93 will be renamed to “SSAP No. 93 - Equity Investments in Tax Credits”. The agenda item also recommends a review of SSAP No. 94R - Transferable and Non-Transferable State Tax Credits to ensure the guidance reflects items that should be captured in scope and admittance provisions. Proposed statutory revisions are expected to be exposed early in 2023.
Ref #2022-15: Affiliate Reporting Clarification
SSAP No. 25 - Affiliates and Other Related Parties
This exposed agenda item intends to clarify elements which were adopted in agenda item 2021-21: Related Party Reporting. The exposed revisions clarify that any invested asset held by a reporting entity which is issued by an affiliated entity, or which includes the obligations of an affiliated entity, is an affiliated investment.
Ref #2022-16: ASU 2022-03, Fair Value Measurement of Restricted Securities
SSAP No. 100R - Fair Value
Exposed SAP clarification revisions to SSAP No. 100R adopt ASU 2022-03 with modification to be consistent with statutory language in the respective SSAPs. This agenda item does not recommend incorporating the new proposed GAAP disclosures on sales restrictions, but identifies that items restricted as to sale would be captured as restricted assets per SSAP No. 1 and be subject to admittance considerations under SSAP No. 4.
Ref #2022-17: Interest Income Disclosure Update
SSAP No. 34 - Investment Income Due and Accrued
Exposed agenda item, classified as SAP clarification, proposes revisions to SSAP No. 34 to add additional disclosures to data capture the gross, non-admitted and admitted amounts for interest income due and to add disclosure of the cumulative amount of paid-in-kind (PIK) interest included in the current principal balance.
Ref #2022-18: ASU 2022-04, Disclosure of Supplier Finance Program Obligations
SSAP No. 105R - Working Capital Finance Investments
Exposed SAP clarification revisions to SSAP No. 105R reject ASU 2022-04 as insurance reporting entities are not the buyers (obligors) of supplier chain finance programs.
Ref #2022-19: SSAP No. 7 – IMR
SSAP No. 7 - Asset Valuation Reserve and Interest Maintenance Reserve
SAPWG exposed this agenda item, classified as a new SAP concept, on negative interest maintenance reserve (IMR) guidance with the intent to facilitate SAPWG discussion. In order to facilitate that discussion, the agenda item provides information on the background of IMR, current accounting guidance, recent discussions of the Life Actuarial (A) Task Force and some broad financial results from year-end 2021 and interim 2022 financial statements.
Comments are requested on potential guardrails and details on unique considerations. SAPWG directed NAIC staff to coordinate a joint regulator discussion with the Life Actuarial (A) Task Force and to develop a memorandum regarding considerations for state insurance regulators. SAPWG intends to document the discussion, resulting decisions, and conclusion of this agenda item in an issue paper.
Ref #2017-33: ASU 2017-12 – Derivatives and Hedging
Issue Paper No. 16X - Derivatives and Hedging
SAPWG exposed as issue paper that details the consideration of ASU 2017-12 within the three agenda items noted below and the adopted statutory revisions.
Upon adoption of this issue paper, SAPWG will dispose this agenda item as the review of ASU 2017-12 is considered complete.
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