Updates from the Statutory Accounting Principles Working Group’s Jan. 27 interim meeting

This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) who met on Jan. 27, 2022 in a virtual interim meeting, to discuss revisions to statutory accounting guidance. Our insurance Value Architects™ attended this meeting to monitor regulatory updates.

SAPWG Updates

Insurance organizations should take note of these changes as they are effective for year-end 2021 reporting.

Adopted revisions to statutory guidance

All adopted revisions to statutory guidance noted below are considered effective immediately after adoption by SAPWG.

Ref #2021-18: VM-21 Scenario Consistency Update

SSAP No. 108 – Derivatives Hedging Variable Annuity Guarantees

Adopted revisions provide 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 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 proposed 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.

For more information on these topics, or to learn how Baker Tilly’s insurance industry Value Architects™ can help, contact our team.