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Updates from the NAIC Statutory Accounting Principles Working Group’s (SAPWG) 2023 spring national meeting

The most recent article from our insurance specialists 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.

This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) at the 2023 Spring National Meeting.

SAPWG discussed a variety of topics including the proposed bond definition and Schedule D reporting, negative interest maintenance reserve (IMR) and the Inflation Reduction Act.

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 noted below are classified as Statutory Accounting Principle (SAP) clarifications and considered effective immediately after adoption by SAPWG, unless specifically noted otherwise.

Issue Paper No. 16X – Derivatives and Hedging 

SAPWG adopted an issue paper that details the historical consideration of ASU 2017-12 within the three previously adopted agenda items noted below and their statutory revisions which were classified as new SAP concepts.  

  • Ref #2018-30 – Hedge Effectiveness Documentation: Adopted Nov. 15, 2018, with a Jan. 1, 2019 effective date.
  • Ref #2021-20 – Effective Derivatives - ASU 2017-12: Adopted Aug. 10, 2022, with a Jan. 1, 2023 effective date (early adoption permitted).
  • Ref #2022-09 – ASU 2022-01 – Fair Value Hedging – Portfolio Layer Method: Adopted Dec. 13, 2022, with a Jan. 1, 2023 effective date (early adoption permitted).

SSAP No. 25 - Affiliates and Other Related Parties

This agenda item clarifies elements which were adopted in agenda item 2021-21: Related Party Reporting. The adopted 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.

SSAP No. 100R - Fair Value 

Adopted revisions to SSAP No. 100R adopt ASU 2022-03 with modification to be consistent with statutory language in the respective SSAPs. This agenda item excludes the 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. 

SSAP No. 34 – Investment Income Due and Accrued 

This adopted agenda item, classified as SAP clarification, revises 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. The revisions are effective for year-end 2023 reporting. A corresponding blanks revision will be exposed at the next meeting of the Blanks (E) Working Group. The revisions in this agenda item are aggregate disclosures with the intent for a separate agenda item in the future to add investment level disclosure starting with 2025 reporting. 

SSAP No. 105R – Working Capital Finance Investments 

Adopted revisions to SSAP No. 105R reject ASU 2022-04 as insurance reporting entities are not the buyers (obligors) of supplier chain finance programs. 

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 June 9, 2023, unless specifically noted otherwise.

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. Throughout 2022 SAPWG exposed updated versions of the principles-based bond definition and draft issue paper, and revisions, which are classified as new SAP concepts, to SSAP No. 26R, SSAP No. 43R, and other various SSAPs.  

During the meeting, SAPWG re-exposed revisions to SSAP No. 26R and SSAP No. 43R, and exposed revisions to various SSAPs, including: 

  • SSAP No. 21R - Other Admitted Assets - to establish guidance for debt securities that do not qualify as bonds. NAIC staff will continue to work with interested parties in refining this guidance. 
  • SSAP No. 86 – Derivatives – updates in this SSAP and in SSAP No. 26R clarify that replication synthetic assets continue to meet the replication accounting requirements regardless of changes to the definition of a bond. 

Readers are encouraged to review these documents on the SAPWG website for further information. The documents detailing the proposed revisions to the SSAPs listed above each include a section summarizing changes since the prior exposure. The revisions are proposed to be effective Jan. 1, 2025. 

SAPWG also exposed for initial comment a document which outlines proposed changes to Schedule BA to encompass the debt securities that do not qualify as bonds, as well as to consolidate existing reporting lines. Revisions to incorporate changes through other schedules as appropriate (such as AVR) will be drafted after comments from this exposure are considered. 

On March 7, 2023, the Blanks (E) Working Group exposed blanks proposals to detail the bond reporting changes and investment schedule changes identified from the bond project. 

Preamble, SSAP No. 4 – Assets and Non-admitted 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 previously adopted on Aug. 10, 2022, 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. 

During the meeting, SAPWG re-exposed the liabilities guidance, which now includes deferring to SSAP guidance which provides topic-specific variations from the definition of a liability in SSAP No. 5R, and the related Issue Paper No. 16X - Updates to the Definition of a Liability.  

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. Exposed revisions clarify: 

  • for qualifying investments which are pledged as collateral that would be in the scope of SSAP No. 48 or SSAP No. 97 if held directly by the reporting entity, the proportionate audited equity valuation shall be used for the comparison for the adequacy of pledged collateral. If the collateral loan exceeds the audited equity valuation of these pledged investments, then the excess shall be non-admitted; and, 
  • where the collateral is an equity/unit investment in a joint venture, partnership, limited liability company, and or SCA is pledged as collateral in a collateral loan, audited financial statements on a consistent annual basis are always required in accordance with SSAP No. 48 and SSAP No. 97. 

Various SSAPs and Annual Statement Instructions 

This agenda item establishes a project to review the annual and quarterly statement instructions to ensure that all accounting guidance is properly reflected within the SSAPs. During the discussion of agenda items 2022-01 and 2022-19 it was identified that relevant guidance was included in the instructions. The exposure requests comments on situations in which guidance in the annual statement instructions should be captured within an SSAP. 

SSAP No. 43R – Loan-backed and Structured Securities 

Exposed revisions to SSAP No. 43R incorporate changes to add collateralized loan obligations (CLOs) to the financial modeling guidance and to clarify that CLOs are not captured as legacy securities. These revisions reflect guidance adopted by the Valuation of Securities (E) Task Force on Feb. 21, 2023. 

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 

Exposed revisions to the referenced SSAPs add a new data captured financial statement note. The data captured will 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. The Blanks (E) Working Group proposal 2023-09BWG, which illustrates the data to be captured in tables, was also exposed to allow for a year end 2023 effective date. The comment period for this agenda item ends on May 5, 2023. 

INT 20-01: ASU 2020-04 and 2021-01 – Reference Rate Reform 

This agenda item will revise the expiration date of the guidance in INT 20-01: ASU 2020-04 and 2021-01 Reference Rate Reform to be Dec. 31, 2024, to align with the deferral of the sunset date in the referenced ASU. 

SSAP No. 24 – Discontinued Operations and Unusual or Infrequent Items 

During the 2022 Summer National Meeting SAPWG adopted revisions to SSAP No. 24 in agenda item 2022-04 which incorporated certain disclosures, adopted with modification from ASU 2021-10, to supplement existing disclosures regarding unusual or infrequent items. 

This agenda item provides clarification on follow-up questions NAIC staff have received since the adoption of agenda item 2022-04. The exposed revisions clarify that ASU 2021-10 is rejected, however, general disclosures about government assistance are incorporated for all reporting entity types. 

SSAP No. 104R – Share-Based Payments, SSAP No. 95 – Nonmonetary Transactions, and SSAP No. 47 - Uninsured Plans 

This agenda item will adopt with modification ASU 2019-08. This ASU revised Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, thus superseding guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The ASU also revised Topic 606 to expand the scope of the codification to include share-based payment awards granted to a customer in conjunction with selling goods or services. Key statutory revisions include: 

  • SSAP No. 104R - adds language to include share-based consideration payable to customers in the same manner as U.S. GAAP 
  • SSAP No. 95 - updates previously adopted U.S. GAAP guidance 
  • SSAP No. 47 - rejects Topic 606 guidance included in ASU 2019-08 

Appendix D — Nonapplicable GAAP Pronouncements 

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

Appendix D — Nonapplicable GAAP Pronouncements 

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

SSAP No. 50 – Classifications of Insurance or Managed Care Contracts, SSAP No. 51R – Life Contracts, SSAP No. 52 - Deposit-Type Contracts, SSAP No. 56 - Separate Accounts, SSAP No. 71 - Policy Acquisition Costs and Commissions, and SSAP No. 86 – Derivatives 

Exposed revisions to the referenced SSAPs reject the referenced ASU as not applicable for statutory accounting. The referenced ASU provides updated transition guidance for ASU 2018-12, which had previously been rejected for statutory accounting. 

SSAP No. 86 – Derivatives and Various SSAPs 

This exposed 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’) 

The comment period for this agenda item ends on May 5, 2023. 

Other actions

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. 

Interested Parties believe the nullification of INT 03-02 could have unintended consequences and lead to diversity in application. They plan to provide additional commentary and specific examples during the public comment period. 

SAPWG directed staff to draft revisions with a proposed effective date for nullification of Dec. 31, 2023. 

SSAP No. 93 - Low Income Housing Tax Credit Property Investments 

This agenda item was initially exposed during SAPWG’s2022 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. SAWPG anticipated that SSAP No. 93 will be renamed to “SSAP No. 93 - Equity Investments in Tax Credits”. The agenda item also recommended 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. 

During the 2023 Spring National Meeting, SAPWG directed NAIC staff to proceed with drafting revisions to SSAP No. 93 and a related issue paper, and also to draft revisions to SSAP No. 94. NAIC staff will consider the feedback from interested parties on the discussion document as well as the exposed FASB guidance in drafting these revisions for subsequent exposure consideration. 

SSAP No. 7 – Asset Valuation Reserve and Interest Maintenance Reserve

During the 2022 Fall National Meeting, 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.

During the 2023 Spring National Meeting, SAPWG directed NAIC staff to coordinate with other groups in developing a 2023 solution and a long-term solution regarding negative IMR. SAPWG and NAIC staff plan to:

  • Make a referral to the Life Actuarial (A) Task Force on further consideration of the asset adequacy implications of negative IMR
  • Make a referral to the Capital Adequacy (E) Task Force for the consideration of eliminating any admitted net negative IMR from total adjusted capital and the consideration of sensitivity testing with and without negative IMR
  • Develop guidance for future SAPWG consideration that would allow the admission of negative IMR up to a certain percentage of surplus; the starting point for discussion will be 5% of surplus.
  • Review and provide updates on any annual statement instructions to clarify which items are recorded through the asset valuation reserve as opposed to IMR
  • Develop accounting and reporting guidance to require the use of a special surplus account or line for net negative IMR
  • Develop governance-related documentation to ensure sales of bonds are reinvested in other bonds
  • Develop a footnote disclosure for quarterly and annual reporting

Comments are requested on potential guardrails and details on unique considerations. SAPWG intends to document the discussion, resulting decisions, and conclusion of this agenda item in an issue paper. 

Subsequent to the Spring National Meeting SAPWG exposed on April 10 via e-vote INT 2023-01T which proposes a limited-time, optional, INT to allow reporting entities with RBS greater that 300% admittance of net negative (disallowed) IMR in the general account up to 5% of adjusted capital and surplus. The INT does not apply to the separate account; possible revisions for the separate account are anticipated to be part of the separate long-term solutions to be developed. The INT includes specific guidance regarding restrictions regarding what should be included in or excluded from the IMR and calculations, as well as specific reporting and disclosure requirements. 

The public comment period for this exposed INT ends June 9, 2023.

SSAP No. 101 – Income Taxes 

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 will provide guidance regarding the CAMT for periods after the first quarter 2023. SAPWG directed NAIC staff to continue to work with industry on developing guidance for the reporting of the CAMT for future discussion. 

INT 22-02 is currently effective through first quarter 2023. Subsequent to the Spring National Meeting SAPWG exposed on April 12, 2023, a proposal to extend INT 22-02 to July 1, 2023, which will allow INT 22-02 to be applied for second quarter of 2023 reporting. The public comment period for this exposure ends on May 5, 2023. 

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