The Statutory Accounting Principles Working Group (“SAPWG”) held a conference call on December 18, 2020, to consider industry and interested party comments on two exposed interpretations of statutory accounting principles (“INTs”). Both topics are summarized below to help ensure our readers are kept up to speed and able to be as proactive as possible as comment periods wind down and year end approaches.
The SAPWG began the conference call with a quick adoption of the following INT as proposed, with no additional feedback from the SAPWG, regulators, or interested parties.
- INT 20-11: Extension of Ninety-Day Rule for the Impact of 2020 Hurricanes, California Wildfires and Iowa Windstorms – Similar to previous extensions that have been granted for other major national storms and hurricanes, this INT provides a temporary relaxation of the 90-day rule for directly impacted policies for a number of different disasters, and therefore, the dates of emergency declarations vary. For ease of application, the sixty-day extension applies to all uncollected premiums more than 90 days overdue from impacted policies at year-end 2020 and expires February 28, 2021, prior to the first quarter 2021 financial statements.
The sixty-day extension adopted by this INT applies to all uncollected premiums more than ninety days overdue from impacted policies at year-end 2020 specific to the following identified disasters:
- Hurricane Isaias, Hurricane Laura, Hurricane Sally, Hurricane Delta, Hurricane Zeta, and Hurricane Eta, and the related tropical storms or flooding from those six named hurricanes.
- California Wildfires, which were declared a disaster on or after August 1, 2020, some of which are ongoing during the fourth quarter of 2020.
- Iowa straight-line windstorms in the counties in which a state of disaster was declared in August of 2020.
Primary Discussion Topic
The majority of the discussion on the conference call was related to a separate INT, which was exposed for a shortened comment period with a deadline of December 22, 2020, after input from the SAPWG, regulators, and multiple representatives speaking on behalf of interested parties.
- INT 20-10: Reporting Nonconforming Credit Tenant Loans (CTLs) – A related agenda item, 2020-24 Accounting and Reporting of Credit Tentant Loans, was originally drafted in June 2020 in response to a Valuation of Securities (E) Task Force referral regarding the accounting and reporting of nonconforming credit tenant loans (CTLs). The issue originated as certain CTLs, which did not meet the criteria as “conforming” CTLs detailed in the Purposes and Procedures Manual of the NAIC Investment Analysis Office, had been incorrectly captured in Schedule D, Part 1 (“D-1”) – Long Term Bonds by some companies.
While this project is certain to move forward in 2021, much of the discussion brought forth from comment letters and prepared remarks from interested parties was centered around the viability of implementation from a timing perspective. Due to the inability to get all nonconforming CTLs filed with the SVO for valuation for 2020 year-end reporting, the SAPWG changed course to expose the tentative INT.
The tentative INT intends to clarify the accounting and reporting of nonconforming CTLs for year-end 2020. Nonconforming CTLs can be reported on D-1 if the CTL has been filed with the SVO for future receipt of an SVO-assigned NAIC designation by February 15, 2021. However, if reported on D-1, a disclosure will be required in Note 1 for the 2020 Annual Notes to Financials as if it were a permitted practice. The reporting entity will need to complete the permitted practice disclosures required by SSAP No. 1 – Accounting Policies, Risks & Uncertainties, and Other Disclosures, with two separate entries that detail the nonconforming CTLs that were reported on D-1 on one line, and the nonconforming CTLs that were not reported on Schedule BA on a separate line of Table 1.A (two lines are required as it is likely a net zero impact to statutory surplus). Nonconforming CTLs that are not filed with the SVO by February 15, 2021 must be reported on Schedule BA and are not permitted to be reported with a credit-rating provider (“CRP”) determined NAIC designation.
The intention of this action by the SAPWG is not to require, or permit, nonconforming CTLs that have been previously reported as mortgage loans (on Schedule B – Mortgage Loans) or as other invested assets (on Schedule BA – Other Long Term Invested Assets) to be moved to D-1 or any other reporting schedule. Those nonconforming CTLs that have previously been reported on Schedules B or BA should remain on those schedules for the duration of this INT, if adopted.
This INT is a limited-time exception to prevent year-end reporting schedule changes while a larger project continues to unfold for nonconforming CTLs. Nonconforming CTLs that have been filed with the SVO and are reported on D-1 should continue the Note 1 reporting for each 2021 quarterly financial statement until an SVO-assigned designation is received.
The next steps will be determined based upon all comments received prior to the comment deadline of December 22, 2020. This INT is anticipated to be adopted via email vote in late December. However, if there are substantial comments in opposition, the SAPWG wil hold a conference call in early January to facilitate further discussion.
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.