The Statutory Accounting Principles Working Group (“SAPWG”) held an interim conference call on November 12, 2020, in lieu of the Fall National Meeting, to review and discuss three non-contested positions and to hear comments and discuss nine previously exposed items. 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
Six items were adopted without further comment by NAIC staff, regulators, and other interested parties and one additional item was adopted after discussion among NAIC staff, regulators and other interested parties. The items were adopted effective immediately for all lines of business (Life/Fraternal, Property, and Health), unless otherwise noted.
- Ref #2020-19: Clarifying Edits – Participation in Mortgages – This item adopts non-substantive revisions to SSAP No. 37 – Mortgage Loans. The revisions clarify that a participant’s financial rights may include the right to take legal action against the borrower (or participate in the determination of legal action), but do not require that the participant have the right to solely initiate legal action, foreclosure, or under normal circumstances, require the ability to communicate directly with the borrower.
- Ref #2020-23: Leasehold Improvements – This item adopts the exposed nonsubstantive revisions to SSAP No. 19 – Furniture, Fixtures, Equipment and Leasehold Improvements and SSAP No. 73 – Health Care Delivery Assets and Leasehold Improvements in Health Care Facilities to update the amortization guidance for leasehold improvements. The updated language will allow leasehold improvements to have lives that match the associated lease term, which agrees with U.S. GAAP in ASC Topic 842.
- Ref #2020-25EP: Editorial Updates – This item adopts editorial revisions to SSAP No. 5R – Liabilities, Contingencies and Impairment of Assets to remove a redundant paragraph reference and to SSAP 62R – Property and Casualty Reinsurance to add a table that lists the questions addressed in Exhibit A – Implementation Questions and Answers.
- Ref #2020-17: Updating the SCA Review Process – This item adopts the exposed nonsubstantive revisions (administrative updates) to the current Subsidiary, Controlled and Affiliated (SCA) filing review process, a process required by SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities. The revisions eliminate many of the manual steps required to communicate the results of each reviewed SCA by updating various paragraphs with improved descriptive language and the availability/delivery of completed SCA reviews for both domestic regulators and financial statement filers. The change in the delivery of SCA review documents is effective January 1, 2021. If state regulators wish to retain the current delivery process they are advised to contact the NAIC staff so special arrangements can be made.
- Ref #2020-20: Cash Equivalent Disclosures – On May 20, 2020, the SAPWG adopted agenda item 2019-20: Rolling Short-Term Investments, incorporating additional principle concepts restricting the classification of certain related party or affiliated investments as cash equivalents or short-term investments. These restrictions applied for items in the scope of SSAP No. 26R – Bonds, SSAP No. 43R – Loan-Backed and Structured Securities, or that would be reported as “Other Invested Assets”. The item adopted on the November 12th call resulted in nonsubstantive revisions to SSAP No. 2R – Cash, Cash Equivalents, Drafts and Short-Term Investments. The revisions require the identification/disclosure of cash equivalents (excluding money market mutual funds) and short-term investments, or substantially similar investments, which remain on the same reporting schedule for more than one consecutive reporting period and clarify that the disclosure is satisfied through the use of a designated code in the investment schedules.
- Ref #2020-21: SSAP No. 43R – Designation Categories for RMBS/CMBS Investments – This item adopted non-substantive revisions to SSAP No. 43R updating the NAIC financial modeling guidance/mapping instructions for RMBS/CMBS investments. The amendments are to align guidance with the financial modeling process as outlined in Part Four of the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual). The current financial modeling process remains unaffected, however, the NAIC designations, as produced by the financial model (and as previously used for reporting), will now be mapped to a final NAIC designation category which reporting entities will then use for accounting and investment schedule reporting purposes.
- Ref #2020-18: SSAP No. 97 – Update – This item adopts minor revisions to SSAP No. 97, paragraph 9, which corroborate the revisions adopted in agenda item 2018-26: SCA Loss Tracking – Accounting Guidance for SSAP No. 97, which clarified guidance stating that reported equity method losses of an investment in a subsidiary, controlled or affiliated entity (SCA) would not create a negative value in the SCA investment, thus stopping the reporting of the equity method losses at zero. In addition, this adoption removes a lingering reference that guarantees or commitments can result in a negative equity value for the SCA.
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