SSAP Updates to the Statutory Financial Statements – 2020 NAIC Spring National Meeting

The NAIC initially planned to host its 2020 Spring National Meeting from March 21-24 in Phoenix, Arizona. Due to the current state of affairs related to COVID-19 and for the benefit of all would-be attendees, the NAIC wisely utilized technology in lieu of travel and held the meeting via conference call. This post will share the highlights of adoptions and other actions taken by the Statutory Accounting Principles Working Group (“SAPWG”) we learned while in attendance on the call, which was held on March 18, 2020.

On a related note, the Blanks Working Group (“BWG”) was also scheduled to meet in Phoenix, but will instead meet on a conference call. The call will take place on Thursday, March 26* and the results will be communicated thereafter in a separate post.

We hope you find this short summary helpful in accelerating your determination of the impacts of the adoptions and modifications. As always, our customers can rest assured that each of the updates below will be implemented into our software according to NAIC specifications, as necessary, based upon the effective date.

Lastly, as a note to our customers regarding COVID-19: We remain fully operational and committed to your success throughout this filing season. If we can be of further assistance during this time, we ask that you please reach out to your Client Services Representative for support.

The SAPWG first reviewed and adopted the following non-contested positions, which are all effective immediately:

  • Ref #2018-26: SCA Loss Tracking – Accounting Guidance – This item adopted revisions to SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities to update the existing requirements for when a reporting entity has a negative equity value in a SCA investment and has provided a financial guarantee or commitment. The financial guarantee or commitment will be recognized under SSAP No. 5R Liabilities, Contingencies and Impairments of Assets and the equity losses of the SCA will be floored at zero (thus not reported as a negative value). 
  • Ref #2018-38: Prepayment to Service and Claims Adjusting Providers – The item emphasizes existing guidance and revises SSAP No. 55 – Unpaid Claims, Losses and Loss Adjustment Expenses to clarify that loss and loss adjustment expense liabilities are established regardless of payments made to third-party administrators.
  • Ref #2019-32: Look-Through with Multiple Holding Companies – This adoption revises SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities and emphasizes existing guidance stating that a look-through is permitted through more than one downstream holding company as long as each look-through entity complies with the requirements as directed in SSAP No. 97.
  • Ref #2019-35: Update Withdrawal Disclosures – This item provides minor clarifying revisions to previously adopted liquidity disclosures related to SSAP No. 51R – Life Contracts, SSAP No. 56 – Separate Accounts and SSAP No. 61R – Life, Deposit-Type and Accident and Health Reinsurance for life and deposit-type contracts.
  • Ref #2019-43: ASU 2017-11, EPS, Distinguishing Liabilities from Equity, Derivatives & Hedging – This item rejects ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features; Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Noncontrolling Interests with a Scope Exception, in SSAP No. 86 – Derivatives. Further, the revisions require that issued, freestanding financial instruments with characteristics of both liabilities and equity should be reported as a liability to the extent the instruments embody an unconditional obligation to the issuer.
  • Ref #2019-45: ASU 2013-11, Income Taxes – Presentation of Unrecognized Tax Benefits – This item rejects ASU 2013-11 in SSAP No. 101 – Income Taxes as not applicable to statutory accounting.
  • Ref #2019-48: Disclosure Update for Reciprocal Jurisdiction Reinsurers – This adoption revises SSAP No. 62R – Property and Casualty Reinsurance to incorporate disclosure updates for reinsurers from reciprocal jurisdictions.

The SAPWG also rejected the following ASU, which is not applicable to statutory accounting:

  • Ref #2019-46: ASU 2016-14, Presentation of Financial Statements for Not-for-Profit Entities

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 #2019-08: Reporting Deposit-Type Contracts – This adoption provides further clarification regarding circumstances when guaranteed investment contracts (“GICs”), or other deposit-type contracts, are reported in Exhibit 5 – Aggregate Reserve for Life Contracts of the life/fraternal annual statement blank (as well as Exhibit 3 of the Separate Accounts blank). In accordance with this adoption, a concurrent BWG exposure, 2020-23BWG, is being considered by the BWG to add a footnote to disclose when mortality risk is no longer present or a significant factor (e.g., due to a policyholder electing a payout benefit, etc.). 2020-23BWG will be discussed further on the March 26 BWG call.
  • Ref #2019-40: Reporting of Installment Fees and Expenses – This item adopts revisions to SSAP No. 53 – Property and Casualty Contracts – Premiums to clarify the application of installment fee revenue guidance, which should be narrowly applied and not analogized to exclude other fees from premium income.
  • Ref #2019-33: SSAP No. 25 – Disclosures – This item was adopted to data-capture disclosures from SSAP No. 25 – Affiliates and Other Related Parties in the annual statement blanks that are currently completed in a narrative (pdf) format. The revisions allow regulators to better aggregate and query related party relationships. A concurrent BWG exposure, 2020-08BWG Modified, is being considered by the BWG to add a disclosure for Note 10.C for related party transactions not captured on Schedule Y.  2020-08BWG Modified will be discussed on the March 26 BWG call and is anticipated to be effective for Annual 2020 reporting.

One item brought before the working group was disposed:

  • Ref #2019-39: Acceptable Collateral for Derivatives – This item was intended to expose revisions to SSAP No. 86 – Derivatives to clarify that the fair value of the collateral received or held, for derivative disclosure purposes, should be reported net of collateral paid/pledged if a counterparty has the legal right of offset. However, after discussions with NAIC staff and after receiving comments from Interested Parties, this item was disposed of as it is believed that third-party derivative exposure through centrally cleared exchanges is appropriately captured in the existing disclosure requirements and in the Blanks.

Beyond the adoptions and disposal, many other items were presented by NAIC Staff and exposed for comment. We will continue to track these proposals during the comment periods, and provide a follow up with adoptions after the next SAPWG Conference Call, which is scheduled for May 20, 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.

* As of March 24, 2020, the NAIC announced they would suspend holding further sessions of the virtual Spring National Meeting to allow members and staff to focus on the developing COVID-19 situation. As such, the BWG meeting will not be held on March 26, 2020, and has been suspended indefinitely.