The Statutory Accounting Principles Working Group (“SAPWG”) held a conference call on March 15, 2021, in lieu of the NAIC Spring National Meeting. Through this post, our intention is to provide an informative snapshot of what was accomplished during the meeting, as well as help accelerate your determination of the impact the adoptions and modifications will have on your financial statements.
The SAPWG first reviewed and adopted the following non-contested positions, which are effective immediately and apply to all lines of business (Life/Fraternal, Property and Health), unless otherwise noted.
- Ref #2020-32: SSAP No. 26R – Disclosure Update – This item adopts revisions to SSAP No. 26 – Bonds to expand the current called bond disclosures to include bonds terminated through a tender offer.
- Ref #2020-33: SSAP No. 32R – Publicly Traded Preferred Stock Warrants – This item adopts revisions to SSAP No. 32R – Preferred Stock and SSAP No. 86 – Derivatives, which will place publicly traded preferred stock warrants in scope of SSAP No. 32R. In addition, the revisions clarify that publicly traded preferred stock warrants shall be reported at fair value.
- Ref #2020-34: SSAP No. 43R – GSE CRT Program – This item revises SSAP No. 43R – Loaned-Backed and Structured Securities to reflect recent changes to the Freddie Mac Structured Agency Credit Risk (STACR) and Fannie Mae Connecticut Avenue Securities (CAS) programs. The modification allows credit risk transfer securities from Freddie Mac and Freddie Mae to remain in scope of SSAP No. 43R when a Real Estate Mortgage Investment Conduit (REMIC) trust structure is used in the STACR or CAS program.
Next, the SAPWG reviewed and adopted the following exposed items, incorporating minor edits as proposed by interested parties. The non substantive revisions were adopted immediately for all lines of business, unless otherwise noted.
- Ref #2020-22: Accounting for Perpetual Bonds – This adoption addresses the accounting treatment for perpetual bonds within scope of SSAP No. 26R – Bonds. With the revisions, perpetual bonds that possess a future call date will retain bond accounting (i.e., accounted for at amortized cost); however, in the event that a perpetual bond does not possess a future call date, fair value accounting is required.
- Ref #2020-39: Interpretation Policy Statement – This item revises Appendix F in the NAIC Policy Statement on Maintenance of Statutory Accounting Principles regarding the issuance and adoption of accounting interpretations (INT). The revisions clarify the actions available to the SAPWG and Accounting Practice and Procedures (E) Task Force and the Financial Condition (E) Committee as well as the voting requirements for when an INT can be overturned, amended or deferred by the Task Force or E Committee.
- Ref #2020-40: Prescribed Practices – This item adopts revisions to the NAIC Accounting Practices & Procedures Manual (AP&P Manual), Preamble Implementation Questions and Answers to clarify the definition and application of prescribed practices. The edits clarify that while any state in which a company is licensed can issue prescribed practices, the prescribed practice directed by the domiciliary state shall be reflected in the financial statements filed with the NAIC and are subject to independent audit requirements. In addition, non-domiciliary states may require insurance entities licensed in their state to file supplementary financial information that requires or allows the use of different accounting practices in the supplementary filing than what is required in the AP&P manual.
- Ref #2019-34: Related Parties, Disclaimer of Affiliation and Variable Interest Entities – This item is the result of discussions between the SAPWG and the Group Solvency Issues (E) Working Group. The adoption clarifies the identification of related parties and affiliates in SSAP No. 25 – Affiliates and Other Related Parties and incorporates new disclosures to ensure regulators have the full picture of complicated business structures.
- Ref #2019-24: Levelized and Persistency Commission – This item has been in discussion since August of 2019 and has had several exposures. After extended discussion among NAIC staff, the Working Group, regulators and interested parties, modifications to SSAP No. 71 – Policy Acquisition Costs and Commissions were adopted with an effective date of December 31, 2021. The revisions provide additional language specific to levelized commission arrangements where agents receive payments made by a third party. In addition, clarifying language is included regarding the effective date and transition, indicating the statement is effective for the years beginning January 1, 2001 and that any change resulting from the adoption of the revised guidance relating to prior years should be accounted for as a change in accounting principle in accordance with SSAP No. 3 – Accounting Changes and Corrections of Errors. The guidance applies to existing contracts in effect as of December 31, 2021 and new contracts thereafter.
- Ref #2020-35: SSAP No. 97 – Audit Opinions – This agenda item originally proposed to expand the quantification exception guidance to SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities, 8.b.iii entities (referred to as U.S. GAAP SCA entities), in limited situations. Particularly, the proposed exception would allow U.S. GAAP SCA entities that depart from a U.S. GAAP provision that has been rejected for statutory accounting to be admitted SCAs without quantification if the departure from U.S. GAAP results in a more conservative position (i.e. fewer assets or greater liabilities), as a result of the departure. Based on feedback received from Interested Parties, as well as other informal comments received, the NAIC believes the nonadmittance due to the inability to quantify a departure from U.S. GAAP is not prevalent and therefore, changes to SSAP No. 97 are not needed.
The SAPWG also rejected the following ASUs which are not applicable to statutory accounting:
- Ref #2020-41: ASU 2020-06 – Convertible Instruments
- Ref #2020-42: ASU 2020-07 – Presentation and Disclosures by Not-for-Profit Entities
Updates from prior meetings are available in Gain’s growing library of resources.
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