This report summarizes all adopted agenda items of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) during 2022 or first effective for 2022 reporting which resulted in statutory accounting principles (SAP) revisions. Insurance organizations should take note of these changes as they may significantly affect their accounting in 2022 and beyond. The agenda items are organized by adoption date. All adopted revisions to SAP noted below are considered effective immediately after adoption by SAPWG unless specifically noted otherwise. The summaries below come from our article series on SAPWG developments.
SAPWG continued its work on the Bond Project throughout 2022. Insurance organizations should review the exposed revisions which include significant revisions to the definition of a bond and bond reporting. These revisions have been exposed with a proposed effective date of January 1, 2025.
November 10, 2021 – Interim Meeting
Ref #2021-15: SSAP No. 43R – Residual Tranches
SSAP No. 43R – Loan-Backed and Structured Securities
Nonsubstantive revisions to SSAP No. 43R clarify that residual tranches shall be reported on Schedule BA-Other Long-Term Invested Assets and valued at the lower of cost or fair value. The revisions were effective December 31, 2022, with early adoption permitted. These revisions were made to address inconsistencies in reporting that came to light through the ongoing principles-based bond project and are an interim action in advance of the adoption of the principles-based bond project.
The revisions add a new footnote within paragraph 26 defining residual tranches as securitization tranches and beneficial interests that reflect loss layers without any contractual payments, whether principal or interest, or both.
Previous discussions highlighted that the statutory accounting terminology of “substantive” and “nonsubstantive” to describe statutory accounting revisions being considered by SAPWG to the AP&P Manual could be misunderstood by users that are not familiar with the specific definitions and intended application of those terms. To avoid the incorrect perception that these terms may reflect the degree of financial impact to companies based on their common usage, the Financial Condition (E) Committee requested that SAPWG consider updating these terms to prevent future misunderstandings. Under the adopted revisions, a revision that would have previously been considered “substantive” would be referred to as a “New SAP Concept” and a revision that would have previously been considered as “nonsubstantive” would be referred to as a “SAP Clarification.” This agenda item revises only the policy statement referenced above. Agenda item 2021-26EP, discussed below, addresses updating of these terms more comprehensively in the AP&P Manual due to the extent that the terms “substantive” and “nonsubstantive” are currently used throughout the AP&P Manual. These new terms will be used on a go-forward basis only. The effective date of January 1, 2022 was intended to provide a clear date for which new items presented to SAPWG will be reflected with the new terminology.
Adopted revisions, effective December 31, 2021, provided consistency with VM-21: Requirements for Principle-Based Reserves for Variable Annuities (VM-21) with regard to the amortization of deferred assets and deferred liabilities by 1) removing reference to the “standard scenario” and 2) adding reference to the conditional tail expectation (CTE) 70 as well as reference the VM-21’s guidance which allows a reporting entity to choose the company specific market path or CTE with prescribed assumptions to calculate prescribed projection amounts for reserve purposes.
Ref #2021-31: Life Reinsurance Disclosure Clarifications
SSAP No. 61R - Life and Health Reinsurance
Adopted revisions, effective December 31, 2021, to SSAP No. 61R clarify life reinsurance disclosures which were new for 2020 reporting in response to questions from the American Institute of Certified Public Accountants (AICPA) NAIC Task Force. The revisions, summarized below, narrow the scope of the disclosures, and clarify what is required in the disclosures.
Clarifies that the disclosures apply to reinsurance contracts in effect for the current period covered by the statement, i.e., comparative disclosure is not required.
Clarifies that the disclosures shall be made in the accompanying supplemental schedules. If the disclosures are not applicable, an affirmative statement that no such contracts were identified is acceptable in the notes to the financial statements or the supplemental schedules.
Clarifies that disclosures under paragraphs 79 and 80 are for ceded reinsurance contracts.
Clarifies that a stop loss or excess of loss reinsurance agreement with deductibles or loss caps which apply to the entire contract and are not adjustable based on other features, do not require disclosure under paragraph 80.
Removes required disclosure of non-proportional reinsurance which does not result in significant surplus relief from paragraph 82.
Clarifies in paragraph 83 that reporting entities that do not prepare U.S. GAAP financial statements, or its financial statements are not part of upstream U.S. GAAP financial statements, can answer this disclosure as not applicable.
SSAP No. 97 – Investments in Subsidiary, Controlled and Affiliated Entities
SAPWG adopted this agenda item, which does not include statutory revisions, to express support for the Blanks (E) Working Group (BWG) exposure 2022-02BWG which expanded the reporting of SCA investments in Schedule D-6-1. The supplemental data to be captured is consistent with current requirements in SSAP No. 97.
SSAP No. 43R - Loan-backed and Structured Securities
Adopted revisions reflect updated NAIC designation/NAIC designation category guidance, which was adopted on October 20, 2021, by the Valuation of Securities (E) Task Force (VOSTF), for residential mortgage-backed securities and commercial mortgage-backed securities. The agenda item also affirms the current practice of including summarized modeling guidance in SSAP No. 43R, which will be updated for any subsequent modeling modifications when adopted by the VOSTF.
Ref #2021-24: General Interrogatory for Cryptocurrencies
SAPWG adopted this agenda item, which does not include statutory revisions, to express support for the BWG exposure 2022-01BWG which added a new general interrogatory to the annual blanks to require the disclose of when cryptocurrencies are directly held or permitted for the remittance of premiums.
Ref #2021-26EP: Editorial Updates
Preamble, Volume I and II’s Table of Contents, and Appendix F
Agenda item 2021-14, adopted in December 2021, addressed updating the source definition of the terms “substantive” and “nonsubstantive”. This agenda item adopts revisions to all remaining uses of these terms in the current AP&P manual with the Preamble, Volume I and II’s Table of Contents and the Summary of Changes, and Appendix F.
SAPWG previously adopted agenda item 2021-14 in December 2021 which revised terminology within the AP&P Manual, a revision that would have previously been considered “substantive” is now referred to as a “New SAP Concept” and a revision that would have previously been considered as “nonsubstantive” is now referred to as a “SAP Clarification.”
Ref #2021-27: ASU 2021-04 - Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
SSAP No. 72 - Surplus and Quasi-Reorganization
Adopted revisions incorporate guidance from ASU 2021-04 to clarify that an entity shall treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option as an exchange of the original instrument for a new instrument. Adopted revisions reject other elements (namely guidance related to if the modification/exchange is related to a debt instrument or line-of-credit) of ASU 2021-04 for statutory accounting.
Ref #2021-28: ASU 2021-03, Intangibles – Goodwill and Other (Topic 350) – Accounting Alternative for Evaluating Triggering Events
SSAP No. 68 - Business Combinations and Goodwill
Adopted revisions to SSAP No. 68 reject ASU 2021-03 for statutory accounting.
Adopted revisions to SSAP No. 22R reject ASU 2021-05 for statutory accounting.
Ref #2021-30: ASU 2021-06 – Amendments to SEC Paragraphs
Appendix D
Adopted revisions to Appendix D reject ASU 2021-06 as not applicable to statutory accounting.
May 24, 2022 – Interim Meeting
Ref #2021-21: Related Party Reporting
SSAP No. 25 - Affiliates and Other Related Parties and SSAP No. 43R – Loan-Backed and Structured Securities
This agenda item adopts SAP clarification revisions to SSAP No. 25 and SSAP No. 43R to clarify application of the existing affiliate definition and to incorporate new disclosure requirements for investments acquired through, or in, related parties, regardless of if they meet the affiliate definition. A footnote was added in SSAP No. 43R to clarify, consistent with SSAP No. 97, that investments in an exchange traded fund (ETF) or a mutual fund (as defined by the SEC) does not reflect ownership in an underlying entity, regardless of the ownership percentage the reporting entity (or the holding company group) has of the ETF or mutual fund unless ownership of the ETF actually results in “control” with the power to direct or cause the direction of management of an underlying company.
The additional reporting elements will be captured outside of the current affiliate reporting requirements. These new reporting requirements, effective December 31, 2022, will occur through a reporting code, detailed below, and new column in the yearend investment schedules.
Direct loan or direct investment (excluding securitizations) in a related party, for which the related party represents a direct credit exposure.
Securitization or similar investment vehicles such as mutual funds, limited partnerships and limited liability companies involving a relationship with a related party as sponsor, originator, manager, servicer, or other similar influential role and for which 50% or more of the underlying collateral represents investments in or direct credit exposure to related parties.
Securitization or similar investment vehicles such as mutual funds, limited partnerships and limited liability companies involving a relationship with a related party as sponsor, originator, manager, servicer, or other similar influential role and for which less than 50% (including 0%) of the underlying collateral represents investments in or direct credit exposure to related parties.
Securitization or similar investment vehicles such as mutual funds, limited partnerships and limited liability companies in which the structure reflects an in-substance related party transaction but does not involve a relationship with a related party as sponsor, originator, manager, servicer, or other similar influential role.
The investment is identified as related party, but the role of the related party represents a different arrangement than the options provided in choices 1-4.
The agenda item does not intend to make any changes to what is reported as affiliated or unaffiliated or the reporting lines in the investment schedules.
Ref #2022-03: Premium Adjustments Allocated to Jurisdictions
Blanks
This agenda item sponsored and forwarded a proposal to the Blanks Working Group, and did not result in SAP revisions. The Blanks revisions modified the instructions for Schedule T to clarify that all premium adjustments (both increases and decreases), including but not limited to Affordable Care Act premium adjustments related to the risk adjustment program, shall be allocated as premium in the respective jurisdiction.
Ref #2022-08: INT 22-01T: Freddie Mac When-Issued K-Deal (WI Trust) Certificates
SSAP No. 43R - Loan-Backed and Structured Securities
This statutory accounting interpretation clarifies that investments in the Freddie Mac When-Issued K-Deal program shall be captured in scope of SSAP No. 43R from initial acquisition.
August 10, 2022 – Summer National Meeting
Ref #2021-20: Effective Derivatives – ASU 2017-12
SSAP No. 86 - Derivatives
SAPWG previously adopted agenda item 2018-30: SSAP No. 86 – Hedge Effectiveness Documentation which contained limited scope revisions in consideration of ASU 2017-12: Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. Agenda item 2018-30 noted further consideration of ASU 2017-12 would subsequently occur. Regulators and industry representatives requested further consideration of ASU 2017-12 to address the disconnect between U.S. GAAP and SAP regarding certain types of effective hedging relationships. This agenda item adopts revisions to SSAP No. 86, classified as new SAP concepts, on assessing hedge effectiveness as well as new guidance on permitted excluded components and the appropriate measurement for those excluded items. The revisions are effective January 1, 2023, with early application permitted. These revisions adopt, with modification, U.S. GAAP.
Ref #2022-01: Conceptual Framework - Updates
Preamble, SSAP No. 4 - Assets and Nonadmitted Assets and SSAP No. 5R - Liabilities, Contingencies and Impairment of Assets
This agenda item summarizes each of the FASB’s two new chapters of its conceptual framework which FASB issued in December 2021, and reviews their potential impact on statutory accounting.
SAPWG adopted revisions to SSAP No. 4, an issue paper which documents the changes in definition of an asset and rationale for why the revisions are considered SAP clarifications in nature, and the Preamble to update reference to a superseded FASB concept statement.
On December 13, 2022, SAPWG re-exposed the liabilities guidance and the related Issue Paper No. 16X - Updates to the Definition of a Liability, intending to provide additional time for industry to review the changes. SAPWG also directed NAIC staff to work with interested parties on proposed clarifying language.
Ref #2022-02: SSAP No. 48 – Alternative Valuation of Minority Ownership Interests
Revisions to SSAP No. 48 clarify that when valuing minority ownership interests, if U.S. GAAP financial statements are not available, an insurer is allowed to use audited U.S tax equity financial statements and that the U.S. tax basis audit is to reside at the investee level.
Ref #2022-04: ASU 2021-10, Government Assistance
SSAP No. 24 - Discontinued Operations and Unusual or Infrequent Items
This agenda item incorporates certain disclosures from ASU 2021-10, which will supplement existing disclosures, to require that if the unusual or infrequent item is as the result of government assistance, the transaction will require identification as well as a description of the terms and provisions of the assistance received.
Ref #2022-05: ASU 2021-09, Leases, Discount Rate for Lessees
SSAP No. 22R - Leases
Revisions to SSAP No. 22R reject ASU 2021-09 for statutory accounting.
SAP clarification revisions to SSAP No. 104R incorporate the referenced ASU’s practical expedient for the current price input, a required component for the option-pricing models which are utilized in the determination of fair value for share-based payments. This is consistent with previous SAPWG decisions to adopt practical expedients regarding option-pricing modeling input permitted by FASB.
Ref #2022-07: ASU 2021-08, Business Combinations
SSAP No. 47 - Uninsured Plans and SSAP No. 68 - Business Combinations and Goodwill
Revisions to SSAP No. 47 and SSAP No. 68 reject ASU 2021-08 for statutory accounting.
December 13, 2022 – Fall National Meeting
INT 22-02: Third Quarter 2022 through First Quarter 2023 Reporting of the Inflation Reduction Act - Corporate Alternative Minimum Tax
SSAP No. 9 - Subsequent Events and SSAP No. 101 - Income Taxes
On October 24, 2022, SAPWG adopted INT 22-02 Third Quarter 2022 Reporting of the Inflation Reduction Act – Corporate Alternative Minimum Tax (CAMT) which provided accounting and disclosure guidance for the third quarter 2022 financial statements related to the CAMT. The INT noted that because a reporting entity is unlikely to be able to make a reasonable estimate, the INT provides exceptions to reporting for Sept. 30, 2022, and also included disclosure information. INT 22-02 was originally to be automatically nullified on Dec. 1, 2022.
During the Fall 2022 National Meeting, SAPWG adopted revisions to INT 22-02 (including its name) to extend it to December 31, 2022, and first quarter 2023 statutory financial statements. The main provisions of the INT are:
A reasonable estimate of the CAMT is not determinable for December 31, 2022, and March 31, 2023, therefore impacts related to the CAMT in the year-end 2022 and March 31, 2023, financial statements are not required.
The reporting entity shall include the following disclosures in the year-end 2022 and March 31, 2023, financial statements:
The Inflation Reduction Act (the Act) was enacted during the reporting period on August 16, 2022.
A statement regarding whether the reporting entity (or the controlled group of corporations of which the reporting entity is a member) has determined if it expects to be liable for CAMT in 2023.
In addition, the reporting entity shall disclose the following: If, based on information regarding the projected adjusted financial statement income for 2023, the entity or the controlled group of corporations of which the reporting entity is a member has determined if it is an “applicable corporation” to determine if CAMT exceeds the regular federal income tax payable. That is, disclose if the reporting entity (or the controlled group of corporations of which the reporting entity is a member) has determined if average “adjusted financial statement income” is above the thresholds for 2023 tax year that they expect to be required to perform the CAMT calculations. Note – this threshold is average adjusted financial statement income in excess of $1 billion for the three prior tax years, which is reduced to $100 million in the case of certain foreign parented corporations. This disclosure is about being an applicable corporation, not if the entity is required to pay.
CAMT updated estimates or other calculations affected by the Act determined subsequent to filing the December 31, 2022, and March 31, 2023, financial statements shall not be recognized as Type I subsequent events.
For year-end 2022 financial statements, the subsequent event exception is expanded to encompass events that occur prior to the issuance of statutory financial statements as well as events that occur before the date the audited financial statements are issued, or available to be issued. This provision intends to prevent reporting entities from having to amend statutory financial statements from material Type I subsequent events as a result of updated information / estimates received after the reporting date of year-end 2022 statutory financial statements pertaining to the accounting for the enactment of the Act.
NAIC staff will continue to coordinate the development of CAMT guidance, expected to be provided after first quarter 2023. INT 22-02 will be automatically nullified on June 15, 2023.
Ref #2021-25: Leasehold Improvements After Lease Termination
SSAP No. 19 - Furniture, Fixtures, Equipment and Leasehold Improvements and SSAP No. 73 - Health Care Delivery Assets and Leasehold Improvements in Health Care Facilities
SAPWG previously exposed SAP clarification revisions to SSAP No. 19 and SSAP No. 73 to conform the guidance for leasehold improvements to the treatment provided in SSAP No. 40R - Real Estate Investments in response to questions received about the treatment of leasehold improvements in
situations where a leased property is purchased by the lessee during the lease term. The adopted revisions clarify that amortization of leasehold improvements will immediately end when a lease is terminated and require that any remaining, unamortized leasehold improvement balance be immediately expensed. The adopted revisions also include a limited, specific exclusion, in SSAP No. 73 - Health Care Delivery Assets and Leasehold Improvements in Health Care Facilities that allows leasehold improvements necessary for the functionality of specific health care delivery assets to be excluded in some cases from the purchase cost of the real estate.
Adopted revisions, classified as a new SAP concept, to SSAP No. 86 incorporate elements of ASU 2022-01 for portfolio layer method hedges, as well as on the U.S. guidance for partial term derivatives issued in ASU 2017-12. These revisions are effective January 1, 2023, with early adoption permitted.
SSAP No. 86: Revisions detail criteria for portfolio and partial-term hedges, including disclosure edits and guidance for reporting when the hedge is discontinued within Exhibit C. Revisions also identify the adoption of ASU 2022-01 to adopt with modification the guidance for partial-term hedges from ASU 2017-12. The partial term hedge guidance is limited to hedged assets and does not extend to liabilities. This is different from U.S. GAAP, but SAPWG noted further statutory discussion is needed on basis adjustments when hedging liabilities, especially under partial term. SAPWG intends to move forward with incorporating the guidance for hedged assets and consider guidance for hedged liabilities subsequently. Portfolio layer method hedges are limited to recognized assets under U.S. GAAP, so proposed guidance for SAP for those hedges is consistent.
Exhibit A – Assessment of Hedge Effectiveness: Limited revisions mirror updated U.S. GAAP guidance and add a new section.
An issue paper has been prepared and exposed for comment to detail statutory accounting revisions related to derivatives for historical purposes.
Ref #2022-10: ASU 2022-02: Troubled Debt Restructurings and Vintage Disclosures
SSAP No. 36 - Troubled Debt Restructuring
The referenced ASU eliminates prior U.S. GAAP guidance for troubled debt restructurings (TDRs) by creditors and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan as losses are captured in the allowance for credit losses under ASU 2016-13: Measurement of Credit Losses on Financial Instruments. ASU 2022-02 expands U.S. GAAP disclosures for modifications provided to debtors experiencing financial difficulty and revises the ASU 2016-13 vintage gross write-off disclosures for public business entities. Consideration of ASU 2016-13 is still pending statutory accounting review by SAPWG.
Adopted revisions to SSAP No. 36 retain existing guidance, identify the rejection of ASU 2022-02, and detail the GAAP to SAP differences for the accounting of TDRs for creditors.
Ref #2022-13: Related Party - Footnote Updates
SSAP No. 25 - Affiliates and Other Related Parties and SSAP No. 97 - Investments in Subsidiary, Controlled and Affiliated Entities
Following on from agenda item 2021-21, adopted on May 24th, this agenda item adopts SAP clarification revisions to SSAP No. 25 and SSAP No. 97 to incorporate language to exempt foreign open-end investment funds from the look-through provisions included in SSAP No. 25.
To learn more on these updates, please contact our team.
