The Statutory Accounting Principles Working Group (“SAPWG”) held a conference call on April 15, 2020, to review and discuss four previously exposed interpretations. The adoptions are summarized in this post to keep our readers abreast of what is changing as a result of the conference call.
Adopted Items
All four items were adopted with feedback from the SAPWG, regulators, and other interested parties. Each of these adoptions have been categorized as nonsubstantive, temporary modifications to the guidance in the SSAPs and are effective immediately.
- Ref #2020-12 (INT 20-01): Reference Rate Reform – This item adopts the guidance from ASU 2020-04, Reference Rate Reform for transitioning from the London Interbank Offered Rate (LIBOR) with modifications for statutory reporting and terminology. ASU 2020-04 provides waivers from derecognizing hedging transactions and provides some exceptions for assessing hedge effectiveness as a result of transitioning away from LIBOR. The amendments to the ASU are effective until December 31, 2022, however, the SAPWG will monitor the market-wide IBOR transition to determine whether future developments warrant any changes, including the end date of the application. The SAPWG also adopted temporary guidance for the following SSAPs:
- SSAP No. 15 – Debt and Holding Company Obligations, paragraph 11 provides clarification around the derecognization of such liabilities
- SSAP No. 22R – Leases, paragraph 17 provides clarification regarding lease modifications and guidance as to when a modification must be accounted for as a separate contract
- SSAP No, 86 – Derivatives, paragraphs 12, 20, 21 and 22 contain language addressing hedge accounting and the allowance for a reporting entity to change the reference rate and other critical terms related to reference rate reform without having it dedesignate the hedging relationship
- Ref #INT 20-02: Extension of Ninety-Day Rule for the Impact of COVID-19 – This interpretation provides exceptions to the ninety-day rule, extending the nonadmission guidance for policies in effect and current prior to March 13th, 2020 (the date as of the declaration of a state of emergency by the U.S. federal government) and policies written or renewed on or after March 13, 2020. The interpretation will allow assets to be admitted even if they are greater than 90 days past due. This extension is only applicable for the March 31st and June 30th, 2020 financial statements and only for the categories of the assets listed under the following SSAPs:
- Premiums receivable from policyholders or agents as required under SSAP No. 6 – Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due from Agents and Brokers, paragraph 9
- Uncollected uninsured plan receivables (excluding Medicare and similar government plans) required under SSAP No. 47 – Uninsured Plans, paragraph 10.a.
- Life premium due and uncollected as required under SSAP No. 51R – Life Contracts, paragraph 12
- High deductible policies as required under SSAP No. 65 – Property and Casualty Contracts, paragraph 37
- Ref #INT 20-03T: Troubled Debt Restructuring Due to COVID-19 – The Working Group reached a consensus to clarify that a modification of mortgage loan or bank loan terms in response to COVID-19 shall follow the provisions detailed in the April 7, 2020 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” and the provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) signed into law on March 27, 2020 in determining whether the modification should be reported as a troubled debt restructuring within SSAP No. 36 – Troubled Debt Restructuring. The provisions in Section 4013 of the CARES Act specifically address temporary relief from troubled debt restructurings (TDR). Consistent with the CARES Act, this interpretation will only be applicable for the period beginning March 1, 2020 and ending on the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning COVID-19 terminates.
FASB Statement on Prudential Regulator Guidance Concerning TDR
Section 4013 of the CARES Act and OCC Bulletin 2020-35
- Ref #INT 20-04T: Mortgage Loan Impairment Assessment Due to COVID-19 – This interpretation approves a limited time statutory exception to defer assessments of impairment for bank loans, mortgage loans and investment products which predominantly hold underlying mortgage loans, which are impacted by forbearance or modifications of loan payments in response to COVID-19. These exceptions are applicable for the March 31st and June 30th, 2020 financial statements and only in response to mortgage loan forbearance or modifications granted in response to COVID-19. The exceptions provided in the interpretation are not applicable in the September 30, 2020 financial statements, however, the Working Group will re-evaluate the interpretation in August to determine if an extension date should be considered.
For modification programs designed to provide temporary relief for borrowers current as of December 31, 2019, the reporting entities may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining impairment status and thus no further impairment analysis is required for each loan modification in the program. The exceptions granted in this interpretation are detailed as follows:
-
- SSAP No. 26R – Bonds: Provide a limited-time exception for assessing impairment under paragraph 13 for bank loans
- SSAP No. 37 – Mortgage Loans: Provide a limited-time exception for assessing impairment under paragraph 16
- SSAP No. 30R – Common Stock: Provide a limited-time exception for assessing other-than-temporary-impairment (OTTI) under paragraph 10 and INT 06-07 due to fair value declines for SEC registered funds that have underlying mortgage loans
- SSAP No. 43R – Loan-backed and Structured Securities: Provide a limited-time exception for assessing OTTI in paragraphs 30-36, due to fair value declines in investments that have underlying mortgage loans
- SSAP No. 48 – Joint Ventures, Partnerships and Limited Liabilities Companies: Provide a limited-time exception for assessing OTTI due to fair value declines in investments that have underlying mortgage loans
- For Ref #INT 20-03 and Ref #INT 20-04, Interested Parties requested that SAPWG consider scoping in Private Placement debt securities, however, the SAPWG and NAIC staff agreed that those securities will be assessed in a separate INT to be drafted and presented at a later date.
Updates from prior meetings are available in 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.