Article
SAPWG seeks comments on proposed bond definition prior to possible revisions
April 1, 2022 · Authored by Daniel E. Buttke, Jeff Maffitt
The Statutory Accounting Principles Working Group (SAPWG) began the “Investment Classification Project” in 2013 with the intent to undertake a comprehensive project to review the investment Statements of Statutory Accounting Principles (SSAP). The purpose was to clarify definitions, scope and the accounting methods and related reporting. The SAPWG met virtually on March 2, 2022, to discuss the progress of this project since August 2021 and to expose a draft issue paper which contains updates to the proposed principles-based bond definition. The following report summarizes the key updates to the previous bond definition exposed in August 2021 and key aspects on which the issue paper requests comments.
Readers are encouraged to review our earlier article on the background of this project and the draft issue paper in addition to the summary below. The issue paper does not contain proposed SSAP revisions and notes that that guidance will be needed to address investments that do not qualify as bonds. SAPWG plans to consider revisions to SSAP No. 26R - Bonds and SSAP No. 43R - Loan-Backed and Structured Securities after it reviews comments from this exposure. The comment deadline for this exposure is May 6, 2022.
Exposed edits to the principles-based bond definition:
- U.S. Treasury Inflation-Indexed Securities (U.S. TIPS) explicitly included in the bond definition: U.S. TIPS are variable-based on an inflation component (without the risk of loss), so a specific exemption was added to clarify their treatment as a bond. A similar exception currently exists in SSAP No. 26R.
- Clarification of the pass-through investments permitted as issuer credit obligations: The prior definition identified equipment trust certificates, enhanced equipment trust certificates and credit-tenant loans that were fully supported by a lease as issuer credit obligations. The definition is now more generic and clarifies that “fully supported” requires cash flows for the repayment of all interest and 95% of the principal.
