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 Jan. 10, 2024.
SAPWG met to discuss current expected credits losses (CECL), reinsurance questions and bonds issued by funds. Insurance organizations should take note of these changes as they may significantly impact their accounting throughout 2024 and beyond.
All adopted revisions to statutory guidance noted below are classified as Statutory Accounting Principle (SAP) clarifications and are effective Dec. 31, 2023.
Various SSAPs and INT 06-07: Definition of phrase “other than temporary”
Federal Accounting Standards Board (FASB) ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), together with subsequent related ASUs often collectively referred to as CECL, changed the methodology for estimating allowances for credit losses. The purpose was to improve recognition and measurement of credit losses on certain financial instruments. CECL requires entities to immediately record the full amount of expected credit losses on their balance sheets instead of waiting until the losses qualify as “probable.” CECL was effective for private companies for fiscal years beginning after Dec. 15, 2022.
NAIC staff and SAPWG have now completed their evaluation of CECL, and for a number of factors, including in part the conservatism principles within SAP which already incorporate a prospective view of credit risk and concepts such as AVR and RBC (which do not exist in GAAP), did not recommend adopting CECL for statutory accounting.
Adopted revisions reject ASU 2016-13, and five other ASUs issued by FASB to amend CECL. The revisions are within fifteen applicable SSAPs and INT 06-07: Definition of phrase “other than temporary.” Three other FASB ASUs to amend CECL have previously been rejected for statutory accounting purposes.
Adopted INT 23-04 which is specific to a life reinsurer, Scottish Re, that is in liquidation, and provides accounting and reporting guidance for ceding entities. Under the proposed INT:
The reinsurance recoverable amount from Scottish Re from paid claims incurred prior to the reinsurance contract cancellation which are not in dispute are admitted after impairment review.
SSAP No. 26R – Bonds
This agenda item is classified as an SAP clarification and 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. 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. The public comment period for this agenda item ends Feb. 9, 2024.