SSAP and Blank Updates to the Statutory Financial Statements – 2019 NAIC Spring National Meeting (Part 1)

The NAIC Spring National Meeting took place recently in Orlando from April 6-9, which falls during a timeframe where many of our readers are in the midst of a very demanding financial reporting season. With that in mind, we will be sharing the highlights of what we learned while in attendance. We hope you find this, and subsequent posts, provide an informative snapshot of what was accomplished during the meeting, as well as accelerate your determination of the impacts of the adoptions and modifications.

For the first post in this series, we thought it best to share the results of the Statutory Accounting Principles Working Group (“SAPWG”), as some of these modifications are effective immediately.

While we hope this update removes some of the burden for each of our readers, we did want to reassure each of our customers, as a friendly reminder, that all updates in the post below have already been 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 effective immediately unless otherwise noted:

  • Ref #2018-17: Structured Settlements – This item adopted (as of December 31, 2018) revisions to SSAP No. 21 – Other Admitted Assets to specify that period-certain structured settlements acquired in accordance with state and federal laws are admitted assets. Period-certain and Life-contingent structured settlements that are not acquired under state and federal laws have been specifically identified as nonadmitted assets.
  • Ref #2018-35: ASU 2018-07, Improvements to Share-Based Payment Accounting – Adopted, with modification, ASU 2018-07 and SSAP No. 104R – Share-Based Payments. The revisions would eliminate the specific section for nonemployee awards from SSAP No. 104R and include guidance for both employees and nonemployees receiving share-based payments in the same manner as GAAP.
  • Ref #2018-36: ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement – This item revises SSAP No. 100R – Fair Value, to adopt the amendments to the GAAP disclosure requirements in ASU 2018-13 – Changes to the Disclosure Requirements for Fair Value Measurement, with modification for statutory accounting. Those modifications include revising the disclosure objective, eliminating information on transfers between Level 1 and Level 2, eliminating policy disclosures for determining when transfers between levels occur, and revise the calculation of net asset value. These modifications correspond to exposure 2019-07BWG.
  • Ref #2018-40: ASU 2018-15, Implementation Costs Incurred in a Cloud Arrangement – Service Contract – Adopts, with modification, the GAAP guidance in ASU 2018-15 – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, allowing for capitalization and amortization of the related implementation costs as nonoperating system software. This item is not effective until the first quarter of 2020, but early adoption is permitted.
  • Ref #2018-46: SSAP No. 86, Benchmark Interest Rates – This adoption revises the benchmark interest rates as reflected in ASU 2017-12 – Targeted Improvements to Accounting for Hedging Activities and ASU 2018-16 – Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as Benchmark Interest Rate for Hedge Accounting Purposes to incorporate the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate, and the SOFR and OIS Rate.
  • Ref #2018-47EP: Editorial and Maintenance Update – During the 2018 Fall National Meeting the SAPWG adopted revisions to SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies to direct reporting entities with investments in scope of SSAP No. 48 to complete the disclosure in SSAP No. 97 if their share of losses in the SSAP No. 48 entity exceeded its investment, which conflicted with guidance in SSAP No. 97 that stated that investments in scope of SSAP No. 48 were not subject to the disclosures in SSAP No. 97. This adoption clarifies that SSAP No. 48 entities are not required to complete SSAP No. 97 disclosures unless directed under SSAP No. 48. 2018-30BWG was adopted for the 2019 Annual Statement to help operationalize this modification.

Next, the SAPWG reviewed and adopted the following two exposed interpretations:

  • Ref #2019-01: Extension of Ninety-Day Rule for Impact of California Camp Fire, Hill Fire and Woolsey Fire – For policies impacted by the California fires a temporary sixty-day extension was added to the ninety-day rule under SSAP No. 6 – Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due from Agents and Brokers.
  • Ref #2019-02: Single Security Initiative – This option provides a limited scope exception to the exchange and conversion guidance in SSAP No. 26R – Bonds for instruments converted in accordance with the Freddie Mac Single Security Initiative. Under this initiative, reporting entities will be permitted to exchange existing “45-day securities” to “55-day securities” without any material change to the securities, or to the loans that back the securities.

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

  • Ref #2018-41: ASU 2017-13 – Amendments to SEC Paragraphs
  • Ref #2018-42: ASU 2018-02 – Reclassification of Certain Tax Effects from AOCI
  • Ref #2018-43: ASU 2018-04 – Debt Securities and Regulated Operations
  • Ref #2018-44: ASU 2018-05 – Amendments Pursuant to SEC Staff Accounting Bulletin No. 118
  • Ref #2018-45: ASU 2018-06 – Depository and Lending

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 #2018-18: This adoption requires structured notes to be reported as derivatives under SSAP No. 86 – Derivatives, except for mortgage-referenced securities, for which the contractual principal amount to be paid at maturity or if the original amount is at risk for other than failure of the borrower to pay the contractual amount due. This item will be effective as of December 31, 2019 and corresponds with exposure 2019-09BWG.
  • Ref #2018-33: This item clarifies that assets pledged to a Federal Home Loan Bank (“FHLB”) on behalf of an affiliate shall be nonadmitted pursuant to SSAP No. 4—Assets and Nonadmitted Assets, that FHLB guidance in SSAP No. 30R – Unaffiliated Common Stock is restricted to entities that are FHLB members, and lastly, that transactions entered into on behalf of an affiliate without that affiliate’s involvement shall be considered a related party transaction under SSAP No. 25  – Affiliates and Other Related Parties.
  • Ref #2018-34: This adoption revises SSAP No. 30R – Unaffiliated Common Stock to explicitly capture foreign open-end investments. (This is effective as of January 1, 2019 and will impact 2019 Annual reporting and corresponds to exposure 2019-12BWG).
  • Ref #2018-37: Adopts, with modification for statutory accounting, the amendments to the GAAP disclosure requirements in ASU 2018-14 – Changes to the Disclosure Requirements for Defined Benefit Plans and corresponds to exposure 2019-08BWG
  • Ref #2018-39: This adoption revises SSAP No. 55 – Unpaid Claims, Losses, and Loss Adjustment Expenses to clarify that interest paid on accident and health claims to claimants shall be reported as Other Claims Adjustment Expense and interest paid to regulatory authorities as Regulatory Fines and Fees. This item is effective as of January 1, 2020, and early adoption is permitted.

In our next posts, we will communicate the actions taken by the Blanks Working Group (“BWG”) during the Spring National Meeting, in addition to sharing other noteworthy items.

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.