Group of professionals meeting together

This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) at the spring 2024 national meeting and the virtual meeting that was held on Feb. 20, 2024. 

SAPWG discussed a variety of topics including tax credits, residuals, income taxes and more. Insurance organizations should note these changes as they may significantly impact their accounting in 2024 and beyond. Check out our insurance services page to learn more about Baker Tilly’s practice. 

Adopted revisions to statutory guidance 

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.

SSAP No. 21R - Other admitted assets 

During the 2023 summer national meeting, SAWPG exposed revisions to SSAP No. 21R to provide guidance for the accounting for debt securities that do not qualify as bonds as well as measurement guidance for residuals.  

At the 2024 spring national meeting, SAPWG adopted revisions, classified as new SAP concepts, to SSAP No. 21R which incorporate the residual definition from SSAP No. 43R and SSAP No. 48. It adds to that definition that an equity position in an asset-backed security issuer, as defined in SSAP No. 26R, would be classified as a residual tranche. The adopted revisions require residuals to be accounted for either 1) at the lower of amortized cost or fair value, with amortized cost calculated under the allowable earned yield method, or 2) under the practical expedient method, which reflects a return of principal concept. The guidance provides separate other-than-temporary impairment calculations for residuals accounted for under these two methods. 

The revisions are effective Jan. 1, 2025. However, they permit reporting entities to early adopt the residual guidance for Dec. 31, 2024 reporting. Transition guidance addresses residuals that were accounted for under a different SSAP as of Dec. 31, 2024, and situations in which the residual was previously accounted for at the lower of amortized cost or fair value, or were accounted for at equity value or fair value. 

With this adoption, the SAP bond definition project is considered complete. NAIC staff is working on a comprehensive training program for the bond project which they hope to roll out in 2024, potentially by June 2024.  

SSAP No. 34 – Investment income due and accrued, SSAP No. 48 – Joint ventures, partnerships and limited liability companies, 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 presented 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 (not just low-income housing tax credits).  

During the 2024 spring national meeting, SAPWG adopted revisions classified as new SAP concepts, to the referenced SSAPs, effective Jan. 1, 2025. Early adoption is permitted for the SSAP No. 94 revisions. 

Readers are encouraged to review the SSAP revisions on the SAPWG website, key elements of the revisions are summarized below. 

SSAP No. 93 – Investments in tax credit structures 

  • Expanded scope to include all federal and state tax credit investment structures 
  • New guidance on the accounting, recognition and reporting of tax credit investment structures, including a prospective utilization assessment, which must be performed in certain circumstances to determine the admissibility of tax credit investments 
  • As of Jan. 1, 2025, reporting entities will prospectively modify the recognition, accounting and reporting of tax credit investment structures 
  • All tax credit investment structures that fall within the scope of SSAP No. 93 not currently reported on Schedule BA will be transferred to Schedule BA as of Jan. 1, 2025 

SSAP No. 94 – State and federal tax credits 

  • Expanded scope to include all purchased, and certain allocated, state and federal income or premium tax credits 
  • New guidance on the accounting, recognition and reporting for state and federal tax credits 
  • As of Jan. 1, 2025, reporting entities will prospectively modify the recognition, accounting and reporting of tax credits 
  • Guidance for unutilized tax credits which were carried forward from prior to Jan. 1, 2025: Federal tax credits in other-than-invested assets will be transferred and reported as a deferred tax asset in accordance with SSAP No. 101. Tax credits previously recorded at acquisition cost will be adjusted to reflect the face value of the acquired tax credits with the corresponding loss immediately recognized or the gain deferred 

SAPWG further directed NAIC staff to: 

  • Sponsor a blanks proposal on the annual statement reporting categories for tax credit investment RBC 
  • Send a referral to the Life Risk Based Capital Working Group to inform them of the planned reporting line changes 
  • Prepare a draft issue paper to document the discussions and revisions for agenda item 2022-14 

Appendix D - Nonapplicable GAAP pronouncements 

Revisions to Appendix D reject the referenced ASU as not applicable to statutory accounting. 

Appendix D - Nonapplicable GAAP pronouncements  

Revisions to Appendix D reject the referenced ASU as not applicable to statutory accounting. 

During the 2023 fall national meeting, SAPWG exposed revisions would add a new disclosure in SSAP No. 21R, beginning with year-end 2024 reporting, with the disclosure being made in a new note and an expanded Schedule BA. The new note disclosure would identify, by the type of collateral that secures the loan, 1) the total amount of collateral loans and 2) the collateral loans admitted and non-admitted by qualifying investment type. Schedule BA was proposed to be expanded with new reporting lines to separate collateral loans by the type of collateral investment that secures the loan.  

During its virtual meeting on Feb. 20, 2024, SAPWG separated the disclosure and Schedule BA changes of this agenda item for separate actions.  

  • Adopted revisions to add the new data captured disclosure 
  • Exposed proposed reporting lines to Schedule BA for collateral loans. While there are no asset valuation reserve (AVR) reporting revisions, the exposure specifically requested feedback from industry and regulators on whether collateral loans backed by certain types of collateral should flow differently through AVR for RBC impact. This element of the agenda item has a public comment deadline of April 19, 2024. 

Annual statement instructions 

When the measurement method for perpetual preferred stock was revised, effective in 2021, the interest maintenance reserve (IMR)/AVR annual statement instructions were not updated to correspond. The adopted revisions to the annual statement instructions correspond to those previously adopted revisions to SSAP No. 32R by removing guidance that directs all preferred stock to be allocated between IMR/AVR based on NAIC designation and adding new guidance that corresponds to the accounting and reporting differences under SSAP No. 32R for redeemable and perpetual preferred stock. With these revisions all unrealized gains or losses on perpetual preferred stock and mandatory convertible preferred stock would reverse to realized gains or losses in the AVR formula. The revisions additionally clarify that SVO-identified Preferred Stock Exchange Traded Funds (ETFs) shall be treated as perpetual preferred stock (equities), which is consistent with SSAP No. 32R. This agenda item did not result in SSAP revisions, and the revisions will be considered by the Blanks (E) Working Group for year-end 2024 reporting. 

SSAP No. 97 - Subsidiary, controlled and affiliated entities

The adopted revisions intend to clarify the interaction between paragraph 24 and paragraphs 26 and 27 in SSAP No. 97 and to remove any perceived contradiction between those paragraphs.

Exposed revisions to statutory guidance

All exposed revisions to statutory guidance noted below are classified as SAP clarifications and with the public comment period ending May 31, 2024, unless specifically noted otherwise.

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 - Affiliates and other related parties. This agenda item proposed 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 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. 

During the 2024 spring national meeting, SAWG exposed its intent to nullify INT 03-02 and re-exposed revisions to SSAP No. 25 and SSAP No. 63: 

SSAP No. 25 – Affiliates and other related parties 

New paragraph four clarifies that if a company transfers assets or liabilities to effectuate a modification to an existing intercompany pooling arrangement, the transaction, including the transfer of assets, shall be accounted for and valued in accordance with the guidance in SSAP No. 63. Such guidance in SSAP No. 63 shall not be applied or analogized to other transactions involving transfers of assets and liabilities. 

SSAP No. 63  

New paragraph eight clarifies guidance specific to modifications of intercompany pooling arrangements and shall not be applied to an analogous transaction or event. 

  • The appropriate valuation basis to be used for assets and liabilities that are transferred among affiliates in conjunction with the execution of a new intercompany pooling agreement(s) that serves to substantively modify an existing intercompany pooling arrangement is statutory book value for assets and statutory value for liabilities. 
  • The net amount of the assets and liabilities moved among entities due to a modification to an intercompany pooling shall be used to settle the intercompany payable/receivable to minimize the amount of assets transferred in the modification. 
  • New paragraph 12 clarifies that other applicable reinsurance guidance from SSAP No. 61R or SSAP No. 62R, depending on the type of business, applies to intercompany pooling arrangements and voluntary and involuntary pools. 
  • New paragraph 13 adds a disclosure. For modifications to an existing intercompany pooling arrangement that involve the transfer of assets with fair values that differ from cost or amortized cost, disclosure of the statement value and fair value of assets received or transferred by the reporting entity is required. 

Annual statement instructions

This agenda item intends to improve the annual statement instructions for Schedule BA and examples for the allocation of investments based on the underlying characteristics of assets. It does not propose statutory accounting revisions.

During its virtual meeting on Feb. 20, 2024, SAPWG re-exposed this agenda item with proposed revisions to the Schedule BA instructions. Under the exposed revisions, non-registered private funds would be included in the reporting lines for joint ventures, partnerships and limited liability company interests as there is no SSAP for non-registered private funds and they would be captured in SSAP No. 48. Residual reporting refers to SSAP No. 21R for the residual definition, pursuant to agenda item 2019-21.

This agenda item has a public comment deadline of April 19, 2024.

SSAP No. 15 – Debt and holding company obligations and SSAP No. 103R - Transfers and servicing of financial assets and extinguishments of liabilities 

The proposed revisions adopt certain new disclosures from ASU 2023-06: 

  • SSAP No. 15: Certain disclosures for unused commitments and lines of credit, disaggregated by short-term and long-term 
  • SSAP No. 103R: Disclosures of accrued interest from repos and securities borrowing, separate disclosure of significant (10% of admitted assets) reverse repos, and counterparty disclosures for repos and reverse repos which are significant (10% of adjusted capital and surplus) 

The exposure also requests feedback on whether the accounting policy disclosure for cash flows associated with derivatives should also be adopted for statutory accounting. 

SSAP No. 26R – Bonds

This agenda item proposes revisions to the principles-based bond definition guidance to clarify that debt securities issued by funds representing operating entities qualify as issuer credit obligations (ICOs). These revisions would be in effect pursuant to the effective date of the revised SSAP No. 26R guidance (i.e. the Bond Project), which is Jan. 1, 2025. Feedback during the exposure period indicated some reporting entities understood the proposed guidance to allow debt issued from feeder funds to be classified as ICOs. However, NAIC staff noted that this was not intended to eliminate the assessment of feeder funds as asset-backed securities to determine whether the debt instrument qualifies for bond reporting. The re-exposure requests feedback on:

  • Language that would assist with clarifying the scope of guidance on the types of debt securities issued by funds that should be considered as operating entities
  • Language to better define the extent of debt that may be issued to fund operations

No. 19 - Furniture, fixtures, equipment and leasehold improvements and SSAP No. 73 - Health care delivery assets and leasehold improvements in healthcare facilities

Proposed revisions to SSAP No. 19 and SSAP No. 73 reject the practical expedient in the referenced ASU but recommend adopting with modification the leasehold improvement guidance. Under the proposed revisions, leasehold improvements associated with a lease between entities under common control would be amortized over the useful life of those improvements to the holding company group,

as long as the lessee controls the use of the underlying asset through a lease. If the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same holding company group, the amortization period would not exceed the amortization period of the holding company group.

SSAP No. 20 – Non-admitted assets

Proposed revisions clarify that directly held crypto assets, using the definition from the referenced ASU, are non-admitted assets for statutory accounting. The proposed revisions do not intend to modify the general interrogatory disclosures for crypto assets that had previously been added to the annual statement blanks and instructions. INT 21-01, accounting for cryptocurrencies, is planned to be nullified upon the adoption of this agenda item.

SAPWG exposed this agenda item and directed NAIC staff to work with industry in determining current application or interpretation differences on the reporting of securities lending collateral and repurchase agreement collateral.

Appendix A-791 Life and health reinsurance agreements (A-791)

Proposed revisions remove the first sentence of the A-791, paragraph 2c’s Question and Answer. This sentence has been misinterpreted as supporting the use of Commissioner’s Standard Ordinary (CSO) rates as a “safe harbor,” at or below which yearly renewable term (YRT) rates would be automatically considered not to be excessive.

SSAP No. 61R - Life, deposit-type and accident and health reinsurance

Proposed revisions to SSAP No. 61R incorporate guidance consistent with guidance in SSAP No. 62R - Property and casualty reinsurance and adds a reference to A-791. This agenda item was developed to address a referral by the Valuation Analysis (E) Working Group (VAWG) regarding reinsurance risk transfer and reserve credit.

Annual statement blanks 

Proposed revisions would add a new part to the reinsurance Schedule S in the life/fraternal and health annual statement blanks and Schedule F in the Property/Casualty and Title annual statement blanks. The new parts of these schedules would include all assets held under a funds withheld arrangement and would include a separate signifier for modco assets. 

SSAP No. 26R - Bonds (Effective 2025), SSAP No. 30R - Unaffiliated common stock, SSAP No. 32R - Preferred stock, SSAP No. 43R - Asset-backed securities (Effective 2025), and SSAP No. 48 - Joint ventures, partnerships and limited liability companies

Revisions are proposed in the referenced SSAPs for consistency so that all SSAPs refer to SSAP No. 21R for the formal definition of, and accounting and reporting guidance for, residuals.

SSAP No. 2R - Cash, cash equivalents, drafts and short-term investments

Proposed revisions remove the remaining references which imply that asset backed, mortgage loans or other Schedule BA items are permitted to be reported as cash equivalents or short-term investments.

SSAP No. 56 - Separate accounts

This agenda item proposed to expand the guidance in SSAP No. 56 to address situations and provide consistent accounting guidance for when assets are reported at a measurement method, other than fair value. SAWPG exposed this agenda item and directed NAIC staff to work with industry in determining current application or differences in interpretations to present to SAWPG along with suggested revisions to SSAP No. 56.

SSAP No. 101 - Income taxes 

Proposed revisions to SSAP No. 101 adopt with modification ASU 2023-09 to remove disclosure of the cumulative amount of each type of temporary tax difference when a deferred tax liability is not recognized for undistributed foreign earnings and add the following disclosures: 

  • Income/loss before income tax expense/benefit, disaggregated by domestic and foreign 
  • Income tax expense/benefit and income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign 
  • Income taxes paid (net of refunds received) to each individual jurisdiction in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) 
  • Qualitative disclosures on tax rate reconciling items 

SSAP No. 27 - Off-balance-sheet and credit risk disclosures risk and financial instruments with concentrations of credit risk and annual statement instructions

Proposed revisions to SSAP No. 27 specifically list the financial instruments excluded from that SSAP rather than referencing superseded FASB guidance. The proposed revisions also add within the annual statement instructions an “other” derivatives category and disclosure examples and instructions for non-derivative financial instruments with off-balance sheet credit risks.

SSAP No. 107—Risk-sharing provisions of the Affordable Care Act

The proposed revisions to SSAP No. 107 remove the disclosures for the transitional reinsurance program and the risk corridor as these programs have both expired. A blanks proposal will also be sponsored to allow for the disclosures to be removed beginning with the year-end 2024 financial statements.

This exposure has a shortened public comment period ending April 19, 2024.

The proposed editorial revisions remove the “revised” and “R” previously intended to identify a substantively revised SSAP, from SSAP titles and SSAP references within the NAIC Accounting Policies and Procedures Manual.

Other actions

SSAP No. 58 – Mortgage guaranty insurance and Appendix A-630 Mortgage guaranty insurance

Updates to the Mortgage Guaranty Insurance Model Act (Model #630) were adopted in August 2023. SAPWG directed NAIC staff to develop revisions to SSAP No. 58 and Appendix A-630.

For more information on these topics, or to learn how Baker Tilly’s insurance specialists can help, refer to our insurance webpage and sign up for our newsletter. If you have further questions regarding the information presented above, schedule a 30-minute meeting with one of our specialists.

Daniel E. Buttke
Jeff Maffitt
Strategic planning resources, computer, calculator, financial reports
Next up

Tax Trends: 2024 quarterly tax roundtable