The Statutory Accounting Principles Working Group (“SAPWG”) held a conference call on May 20, 2020, to review and discuss eight previously exposed items and ten non-contested SSAP revisions. The adoptions are summarized in this post to keep our readers abreast of what is changing as a result of the conference call.
Fifteen items were adopted with feedback from the SAPWG, regulators, and other interested parties. All items were adopted effective immediately, unless otherwise noted.
- Ref #2019-25: Working Capital Finance Investments – This item adopts Issue Paper No. 163 – Working Capital Finance Investment Updates, which introduces substantive revisions to SSAP No. 105 – Working Capital Finance Investments to change some of the existing accounting and program requirements. This item is specific for Working Capital Finance Investments (WCFI) which comply with the program requirements and have been designated by the NAIC Securities Valuation Office (SVO). The modifications, with a friendly amendment added for clarification purposes, are effective June 30, 2020.
- Ref #2019-37: Surplus Notes – Enhanced Disclosures – This adoption revises SSAP No. 41R – Surplus Notes. These revisions increase disclosure requirements regarding the issuance of surplus notes and the associated asset in which the terms negate or reduce typical cash flow exchanges. It is anticipated that the concurrent Blanks proposal (2020-03BWG Modified) will capture such structures/transactions for year-end 2020 reporting.
- Ref #2019-47: VM 21 Grading – This item adopts the exposed revisions to SSAP No. 3 – Accounting Changes and Corrections of Errors and SSAP No. 51R – Life Contracts, with a January 1, 2020 effective date. The revisions require disclosure of changes in the reserve valuation basis, as a result of VM-21. Additionally, requirements for Principle-Based Reserves for Variable Annuities are disclosed in a manner which is consistent with a change in valuation basis and with additional disclosures regarding the phase-in period. The related BWG proposal (2020-05BWG Modified) will also have consistency revisions, if required.
- Ref #2020-06EP: Editorial and Maintenance Update – This item adopts editorial revisions to SSAP No. 21R – Other Admitted Assets, paragraph 2, which removes excerpts from SSAP No. 4 – Assets and Nonadmitted Assets regarding the definition and accounting treatment for admitted assets. In addition, editorial revisions are being made to SSAP No. 51R – Life Contracts to update references in paragraph 36 related to changes in valuation basis to be consistent with the originally adopted language in Issue Paper No. 14 – Implementation of Principle Based Reserving, Exhibit A.
- Ref #2020-07 Blanks: Change to the Summary Investment Schedule – This item has a concurrent exposure with the BWG (2020-21BWG Modified) and adopts nonsubstantive revisions to Appendix A-001: Investment of Reporting Entities, Section 3, Summary Investment Schedule. The revision adds a line to the schedule for Total Valuation Allowance. With the addition of this line, mortgage loans reported in Schedule B will appropriately tie to the Summary Investment Schedule. This adoption will be effective for 2020 Annual and audited financial statement reporting.
- Ref #2020-08: ASU 2016-20, Technical Corrections & Improvements – Topic 606, Revenue from Contracts with Customers – This agenda item adopts the exposed revisions to SSAP No. 7 – Uninsured Plans as final. The revisions reject ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which is consistent with the prior treatment of ASUs related to Topic 606.
- Ref #2020-09: ASU 2019-18, Collaborative Arrangements (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606 – This ASU clarifies and aligns revenue recognition under the new Topic 606 for collaborative arrangements. This agenda item adopts the exposed revisions to SSAP No. 47 – Uninsured Plans as final. These revisions reject ASU 2018-18, which is consistent with the prior treatment of ASUs related to Topic 606.
- Ref #2020-10: ASU 2017-14, Amendments to SEC Paragraphs in Topic 220, Topic 605 and Topic 606 – This item adopts the exposed revisions to Appendix D – Nonapplicable GAAP Pronouncements to reject ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606), Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403 as not applicable to statutory accounting.
- Ref #2020-11: ASU 2020-02 – Amendments to SEC Paragraphs in Credit Losses (Topic 326) and Leases (Topic 842) – This item adopts the exposed revisions to Appendix D – Nonapplicable GAAP Pronouncements to reject ASU 2020-02, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) as not applicable to statutory accounting.
- Ref #2019-42: Cash Equivalent – Cash & Liquidity Pools – This adoption revises SSAP No. 2R – Cash, Cash Equivalents, Drafts and Short-Term Investments to reflect that certain cash/liquidity pools, meeting the defined criteria, shall be included in the scope of SSAP No. 2R and reported consistently as a cash equivalent. Revisions permitting cash liquidity pools that meet the specific criteria are effective May 20, 2020 for reporting entities with qualifying cash pools. Reporting entities with cash liquidity pools that do not meet the requirements for reporting within scope of this standard are not permitted to be reported as cash equivalents or short-term investments and should be reported as a prescribed or permitted practice. Reporting entities that have to reclassify qualifying cash liquidity pools to a cash equivalent from a different investment schedule may elect to complete these reclassifications effective January 1, 2021, with early adoption permitted. An additional disclosure reporting the entity’s share of the cash pool by asset type is anticipated for the 2020 Annual Statement (on Schedule E – Part 2).
- Ref #2019-20: Rolling Short-Term Investments – This item revises SSAP No. 2R – Cash, Cash Equivalents, Drafts and Short-Term Investments by incorporating additional principle concepts in classifying investments as cash equivalents or short-term investments. The revisions will restrict the classification of certain investments as a cash equivalent or short-term investment for related party or affiliated investments that would be in the scope of SSAP No. 26R – Bonds, SSAP No. 43R – Loan-Backed and Structured Securities, or that would be reported on Schedule BA in the event that: 1) the reporting entity does not reasonably expect that the investment will actually terminate or mature within the timeframe permitted for cash equivalent or short-term investment classification, 2) the investment was previously reported as a cash equivalent/short-term investment and the initial maturity timeframes have passed, or 3) the investment was sold or matured and the same or substantially similar investment was reacquired within a one year timeframe. This item also adds clarifying language to SSAP No. 103R – Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, paragraph 28.I. A concurrent BWG proposal (2020-19BWG Modified) has also been exposed, with an Annual 2020 reporting effective date.
- Ref #2020-14: Assessment of OTTI Based on Original Contract Terms – The intention of this item is to clarify the assessment of other than temporary impairment (OTTI) guidance in SSAP No. 26R – Bonds. The Working Group adopted nonsubstantive revisions to incorporate a new footnote to the SSAP, clarifying that if a debt instrument has been modified in accordance with SSAP No. 36 – Troubled Debt Restructuring or SSAP No. 103R – Transfers and Servicing of Financial Assets and Distinguishments of Liabilities, the assessment of the OTTI shall be based on the modified contractual terms of the debt instrument.
- Ref #INT20-05T: Investment Income Due and Accrued – The exceptions and provisions detailed in this interpretation are applicable for the June 30th, 2020 (2nd quarter) financial statements. The Working Group considered limited time collectibility assessments and admittance exceptions for investment income due and accrued and reached the following consensus:
- Continue with the existing guidance in SSAP No. 34 – Investment Income Due and Accrued that investment income shall be recorded when due (earned and legally due) or accrued (earned but not legally due until after reporting date).
- Continue with existing guidance in SSAP No. 34 to require an assessment of whether recorded investment income due and accrued is uncollectible
- Provide an exception for the non-admittance of recorded investment income due and accrued that is deemed collectible and over 90-days past due. With this exception, reported investment income interest due and accrued that becomes over 90 days past due in the 1st or 2nd quarter may continue to be admitted in the June 30th, 2020 financial statements. This exception does not encompass accrued interest on mortgage loans that are in default. Mortgage loans in default should continue to follow the SSAP No. 34 guidance.
- Ref #INT20-06T: Participating in the 2020 TALF Program – The Federal Reserve re-established the Term Asset-Backed Securities Loan Facility (TALF) on March 23, 2020, to support the flow of credit to consumers and businesses. The provisions detailed in this interpretation are applicable and effective for the duration of the 2020 TALF loan program and provide guidance for insurance reporting entity involvement in the program. The specific guidance to be followed is dependent upon whether 1) the reporting entity borrower directly receives the TALF loan or 2) the reporting entity does not directly receive the TALF loan, but is an investor to borrowers that receive the loan.
- Ref #INT20-07T: Troubled Debt Restructuring of Certain Debt Investments Due to COVID-19 – This interpretation is effective for the specific purpose of providing practical expedients in assessing whether modifications in response to COVID-19 are insignificant under SSAP No. 36 – Troubled Debt Restructuring or in assessing whether a change is substantive under SSAP No. 103R – Transfers and Servicing of Financial Assets and Distinguishments of Liabilities. The interpretation will only be applicable for the period beginning on 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 the COVID-19 outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates.
- Ref #2019-41: Eliminating Financial Modeling Process – During the 2019 Fall National Meeting, the Working Group exposed revisions to eliminate the “financial modeling” process from SSAP No. 43R – Loan-Backed and Structured Securities. This agenda item was in coordination with a Valuation of Securities (E) Task Force (VOSTF) referral. The VOSTF has since modified its proposal for the elimination of financial modeling for RMBS/CMBS securities. An additional agenda item will be proposed at a later date to reflect the new approach adopted by the VOSTF.
There are several additional exposures outstanding with a comment deadline of May 29, 2020, and one additional interpretation exposed with a comment deadline of June 5, 2020. These exposures are expected to be brought before the SAPWG during the next conference call, which is scheduled for June 15, 2020.
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.