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SSAP Updates to the Statutory Financial Statements – 2019 NAIC Fall National Meeting

The NAIC recently held its Fall National Meeting from December 7-10 in Austin, Texas. This post will share the highlights of adoptions and other actions taken by the Statutory Accounting Principles Working Group (“SAPWG”) we learned while in Austin. As a friendly reminder, the Blanks Working Group (“BWG”) did not meet in Austin. The BWG meetings will be covered by conference call due to changes in the Procedures of the Blanks Working Group enacted earlier this year. The next conference call to be held by the BWG will take place on December 17, 2019, and the results of the call will be communicated thereafter.

We hope you find this short summary helpful in accelerating your determination of the impacts of the adoptions and modifications. As always, our customers can rest assured that each of the updates below will be implemented into our software according to NAIC specifications, as necessary, based upon the effective date.

The SAPWG first reviewed and adopted the following non-contested positions, which are all effective immediately unless otherwise noted:

  • Ref #2019-19: SIRI Equity Interests – This item adopted revisions to clarify what should be captured in the Supplemental Investment Risk Interrogatory (“SIRI”) Line 13:10 Largest Equity Interests, noting that a look-through should only occur for non-diversified funds. The item does not result in any statutory accounting revisions, but will prompt the BWG to sponsor a proposal to help implement this adoption for 2020 year-end application. For year-end 2019, the revisions do exclude SVO-Identified Bond Exchange-Traded Funds and SVO-Identified investments with underlying characteristics of fixed income investments from this equity interrogatory.
  • Ref #2019-22: Wash Sale Disclosures – The item revises SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities to clarify that only investments which are sold prior to a reporting period end and repurchased after that reporting date are subject to the wash sale disclosure. This clarification eliminates the need to report transactions that meet the wash sale criteria that are sold and repurchased during the same reporting period.
  • Ref #2019-23: Going Concern – This adoption revises SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities to specify that nonadmittance is required when there is unalleviated substantial doubt about an SCA’s ability to continue as a going concern identified in any part of the audit report, accompanying financial statements, or notes to financial statements.
  • Ref #2019-26: A-785 Updates for Covered Agreement – This item adopted revisions to Appendix A – Excerpts of NAIC Model Laws, which incorporated covered agreements with the EU and UK into Appendix A-785 Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786).
  • Ref #2019-27EP: NAIC Accounting Practices and Procedures Manual Editorial and Maintenance Update – Editorial changes were adopted related to SSAP No. 62R – Property and Casualty Reinsurance, SSAP No. 86 – Derivatives, and SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities.
  • Ref #2019-28: ASU 2019-05, Targeted Transition Relief – This item rejects ASU 2019-05, Targeted Transition Relief, in SSAP No. 100R – Fair Value. This ASU was rejected as elections to utilize a fair value measurement method in lieu of the measurement method identified in the applicable SSAP is not permitted under statutory accounting.
  • Ref #2019-29: ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities – This adoption revises SSAP No. 68 – Business Combinations and SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities to formally reject ASU 2019-06, which provides alternative accounting treatments for goodwill reported by not-for-profit entities. This optionality is not allowed under statutory guidance, although the alternative goodwill accounting option permitted by the ASU is similar to existing guidance required for all statutory filers in SSAP No. 68.

The SAPWG also rejected the following ASUs which are not applicable to statutory accounting:

  • Ref #2019-30: ASU 2019-03, Updating the Definition of Collections
  • Ref #2019-31: ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made

The meeting continued with a discussion reviewing the comments of exposed items. Those that were adopted are listed below and are effective immediately unless otherwise noted:

  • Ref #2019-18: Other Derivatives – This item was adopted to clarify the accounting guidance in SSAP No. 86 – Derivatives that “other” derivatives not used in hedging, income generation, or replication transactions should be reported at fair value and do not qualify as admitted assets. 
  • Ref #2017-28: Reinsurance Credit – Informal Life and Health Reinsurance Drafting Group – This revision adopts the previously exposed SSAP No. 61R – Life, Deposit-Type and Accident and Health Reinsurance disclosures, which are not effective until December 31, 2020. In addition, revisions to Appendix A-791 – Life and Health Insurance Question and Answer (“Q&A”) were adopted in regard to contracts with medical loss ratios. Lastly, updates to the Q&A (para. 2c) were adopted for risk transfer and group term life yearly renewable term (“YRT”) reinsurance and are effective January 1, 2021. For assistance, informal application questions related to the scope of Appendix A-791 were referred to the informal life and health reinsurance drafting group and the evaluation of YRT risk transfer was referred to the Life Actuarial Task Force.
  • Ref #2019-12: ASU 2014-17, Business Combinations, Pushdown Accounting – This item clarifies that goodwill resulting from the acquisition of a subsidiary, controlled or affiliated (“SCA”) entity by an insurance reporting entity that is reported on SCA financial statements (resulting from the application of pushdown) is subject to the 10% admittance limit based on the acquiring entity’s capital and surplus. This item had additional components that will be re-exposed to further revise SSAP No. 68 – Business Combinations and Goodwill. It is also anticipated that after the re-exposure there will be additional discussion of whether or not pushdown should be permitted under statutory accounting.

For a comprehensive list of all actions taken by the SAPWG at the 2019 Fall National Meeting, please refer to the NAIC Meeting Summary Report.

Meetings from prior updates are available on Gain’s growing library of resources.

As always, Gain Compliance integrates the latest changes into the NAIC guidelines to streamline the reporting process. If there are any further questions or comments, please do not hesitate to reach out.