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Updates from the Statutory Accounting Principles Working Group’s (SAPWG) May 16 interim meeting

This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) at its interim meeting on May 16, 2023.

SAPWG discussed a variety of topics including the Inflation Reduction Act, tax credits and investments, and more.

Insurance organizations should take note of these changes as they may significantly affect their accounting in 2023 and beyond.

Adopted revisions to statutory guidance

All adopted revisions to statutory guidance below are classified as Statutory Accounting Principles (SAP) clarifications and considered effective immediately after adoption by SAPWG, unless specifically noted otherwise.

Interpretation 22-02: Third Quarter 2022 through Second Quarter 2023 Reporting of the Inflation Reduction Act - Corporate Alternative Minimum Tax

During the 2022 fall national meeting, SAPWG adopted INT 22-02: Third Quarter 2022 through First Quarter 2023 Reporting of the Inflation Reduction Act - Corporate Alternative Minimum Tax (CAMT) to provide temporary guidance related to the CAMT through first quarter 2023 reporting.

This agenda item extends INT 22-02 to Aug. 16, 2023, which will allow INT 22-02 to be applied for the second quarter of 2023 reporting.

SSAP No. 86 - Derivatives and Various SSAPs

This agenda item details editorial updates to:

SSAP No. 86 - Derivatives: Change to a disclosure category from “intrinsic value” to “volatility value.”

Various SSAPs

  • Streamline references to the Purposes and Procedures Manual
  • Changes to consistently reference percent (with % sign and not “percent”)
Exposed revisions to statutory guidance

All exposed revisions to statutory guidance below are classified as SAP clarifications with the public comment period ending June 30, 2023, unless specifically noted otherwise.

SSAP No. 43R - Loan-Backed and Structured Securities and SSAP No. 48 - Joint Ventures, Partnerships and Limited Liability Companies

Beginning with year-end 2022, reporting residual interests, as defined in SSAP No. 43, were required to be reported on Schedule BA on designated reporting lines. From its review of 2022 reporting results, SAPWG believes information for residuals may be underreported due to the various legal forms of residual investments. This agenda item proposes revisions to clarify the reporting of in-substance residuals regardless of the structure of the investment vehicle.

  • SSAP No. 43R: Revisions move residual interest guidance from a footnote to new paragraphs within SSAP No. 43R and clarify that the residual interest guidance applies regardless of the legal form of the investment.
  • SSAP No. 48: Clarifies that investments in the scope of SSAP No. 48 that represent residual interests shall be reported on the dedicated residual reporting line of Schedule BA. This clarification is a change only in reporting classification within Schedule BA. Revisions clarify that the residual interest guidance applies regardless of the legal form of the investment.

SSAP No. 34 - Investment Income Due and Accrued

At its national meeting in the spring, SAPWG adopted agenda item 2022-17 which revised SSAP No. 34 to add disclosures to capture the gross, nonadmitted 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.

This agenda item proposes clarifying guidance on how paydowns and disposals would impact PIK interest included in the cumulative balance. The revisions clarify that decreasing amounts to principal balances (paydowns, disposals, sales, etc.) are first applied to any PIK interest included in the principal balance. The original principal would not be reduced until the PIK interest had been fully eliminated from the balance. The proposed revisions also provide a practical expedient for determining the PIK interest in the cumulative balance by subtracting the original principal or par value from the current principal or par value, with the resulting PIK interest not to go less than $0.

SSAP No. 93 - Investments in Tax Credit Structures and SSAP No. 94R - State and Federal Tax Credits

This agenda item was initially exposed during the 2022 fall national meeting. The agenda item, classified as a new SAP concept, was exposed along with a discussion document on potential statutory accounting concepts for tax equity investments (i.e., expansion of SSAP No. 93). The discussion document recommended 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.

At the May 16 interim meeting, SAPWG exposed revisions to SSAP No. 93 and SSAP No. 94R, which includes retitling these SSAPs as reflected above. The revisions are significant, and interested parties are encouraged to read the exposed revisions of SSAP No. 93 and SSAP No. 94R on SAPWG’s website. Significant revisions include:

SSAP No. 93

  • Offers an expanded scope that includes tax credit investments irrespective of structure, which is a departure from U.S. generally accepted accounting principles that only apply to tax equity investments
  • Provides guidance on the investment structure; SSAP No. 94R provides guidance on state and federal tax credits (including tax credits allocated from tax credit investments)
  • Applies the proportional amortization method from the recently issued FASB ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

SSAP No. 94R

  • Widens the scope to include all state and federal tax credits allocated to or purchased by the reporting entity
  • Eliminates the off-balance sheet asset requirement currently in SSAP 94R; revisions require tax credits to be recorded at face value, and acquisitions at a premium will result in a loss to be immediately recognized whereas acquisitions at a discount will require the gain be deferred as an “other liability” until the reporting entity has utilized tax credits in excess of the acquisition cost

These revisions will be documented in an Issue Paper which is anticipated to be exposed in fall 2023.

Other actions

SSAP No. 51R - Life Contracts, SSAP No. 59 - Credit Life and Accident and Health Insurance Contracts, and SSAP No. 61R - Life, Deposit-Type and Accident and Health Reinsurance

During the fall national meeting, SAPWG exposed revisions to the referenced SSAPs which would add a new data-captured financial statement note. The data captured was intended to be used by the Life Risk-Based Capital (E) Working Group in the development of net amounts at risk in the categories needed for the Life C-2 mortality risk charges updates.

At the May 16 interim meeting, SAPWG deferred action on this agenda item and referred the comments received during the comment period to the Life Risk-Based Capital (E) Working Group. Interested parties recommended that the proposed note be captured elsewhere in the annual statements and highlighted possible redundancies between the proposed note and existing exhibits in the annual statement.

For more information on these topics, or to learn how Baker Tilly’s insurance industry Value Architects can help

Daniel E. Buttke
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