SSAP and Blank Updates to the Statutory Financial Statements – 2019 NAIC Summer National Meeting

The NAIC recently held its Summer National Meeting in New York City, which we attended from August 3-6. This post will share the highlights of adoptions and other actions taken by the Statutory Accounting Principles Working Group (“SAPWG”) while in New York. As a friendly reminder, the Blanks Working Group (“BWG”) did not meet in New York City and is now to meet by conference call due to the changes in the Procedures of the Blanks Working Group. The next conference call to be held by the BWG will take place on August 20, 2019, and the results 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 #2017-28: SSAP No. 62R – Reinsurance Credit – This item adopted substantive revisions to SSAP No. 62R – Property and Casualty Reinsurance to clarify the application of existing reinsurance concepts that were previously adopted for historical purposes as well as more explicitly incorporate GAAP guidance from and related to both FASB EITF 93-6 and ASC 944-20.
  • Ref #2018-03: SSAP No. 43R – Reporting NAIC Designations as Weighted Averages – The item revises SSAP No. 43R – Loan-backed and Structured Securities to require securities with differing NAIC designations by lot to be reported in overall aggregate at the lowest NAIC designation (single reporting line), or report the investments in separate aggregations by NAIC designation.
  • Ref #2019-11: Reinsurance Credit Effective Date – This item was adopted with an effective date of January 1, 2019, and further clarifies that the guidance adopted November 15, 2018, (Ref #2017-28) and effective as of January 1, 2019, applies to contracts in effect as of that date. The revisions to SSAP No. 62R – Property and Casualty Reinsurance now indicate that if a change is required to prior application, it should be reported as a change in accounting principle.
  • Ref #2019-15EP: NAIC Accounting Practices and Procedures Manual Editorial and Maintenance Update – This adoption completes various editorial revisions and updates to SSAP No. 62R – Property and Casualty Insurance, SSAP No. 63 – Underwriting Pools, SSAP No. 84 – Health Care and Government Insured Receivables, SSAP No. 86 – Derivatives, and SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

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

  • Ref #2019-16: ASU 2015-08, Business Combinations – Pushdown Accounting – SEC Paragraphs
  • Ref #2019-17: ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials

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 #2016-02: ASU 2016-02, Leases – This adoption substantively revises SSAP No. 22R – Leases to incorporate the GAAP guidance in ASU 2016-02 – Leases, while retaining the operating lease concept. The effective date is January 1, 2020, for all new leases entered into and for existing leases reassessed due to a change in terms and conditions. Early adoption is permitted.
  • Ref #2018-04: VOSTF Bank Loan Referral – The adoption revises SSAP No. 21R – Other Admitted Assets to clarify that an investment within the scope of another SSAP does not get reclassified as a “collateral loan” simply because it is also secured with collateral.
  • Ref #2018-22: Participation Agreement in a Mortgage Loan – The revisions to SSAP No. 37 – Mortgage Loans clarify the structure of mortgage loans. Mortgage loans acquired through a participation agreement are intended to be captured as in scope while “bundled” mortgage loans are explicitly excluded.
  • Ref #2019-03: Affiliated Transactions – This item clarifies the principle application of SSAP No. 25 – Affiliates and Other Related Parties, as well as an “affiliated” classification for transactions that are in-substance related party transactions, even if conducted through a non-related intermediary.
  • Ref #2019-06: ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts – This adoption rejects the revision to GAAP for long-duration contracts under ASU 2018-12 – Targeted Improvements to the Accounting for Long-Duration Contracts, as not applicable to statutory accounting. No statutory disclosure changes were made with this adoption, but may be considered in the future.
  • Ref #2019-09: SSAP No. 101 – Q/A Updates – TCJA – This item was adopted to update the guidance developed in response to the federal Tax Cuts and Jobs Act (“TCJA”) and incorporate the appropriate revisions into SSAP No. 101 – Income Taxes, and more specifically in Exhibit A: Implementation of Questions and Answers in SSAP No. 101.
  • Ref #2019-10: SSAP No. 101 – Q/A Updates – DTA/DTL Offset – Like Ref #2019-09, this item was adopted to revise the guidance in Exhibit A: Implementation of Questions and Answers in SSAP No. 101 – Income Taxes to meet the requirements of the TCJA. This item, Ref #2019-10, clarifies the application of the deferred tax admissibility calculation, specifically in regards to offsetting deferred tax liabilities.

One item brought before the working group was disposed:

  • Ref #2019-13: Clarification of a Look-Through Approach – This item was intended to revise SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities for application of the look-through approach to value investments in SCA entities held by downstream holding companies. 
  • This modification was rejected because SSAP No. 97 allows the look-through approach in circumstances that have been deemed reasonable within statutory guidance and does not prohibit a more-than-one look-through when the look-through entities comply with existing provisions of SSAP No. 97. While the modification was rejected, the NAIC is considering a request by industry for a new agenda item that would explicitly, rather than implicitly, state in SSAP No. 97 that a more-than-one look-through is permissible in this scenario.

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.