Updates from the Statutory Accounting Principles Working Group’s Nov. 17 fall national meeting and NAIC/AICPA (E) Working Group

SSAP No. 34 — Investment Income Due and Accrued, SSAP No. 48 — Joint Ventures, Partnerships and Limited Liability Companies, SSAP No. 93 — Low Income Housing Tax Credit Property 

Investments and SSAP No. 94R — Transferable and Non-Transferable State Tax Credits 

During the spring 2024 meeting, SAPWG adopted, as final, agenda item 2022-14 which exposed revisions to SSAP No. 34 — Investment Income Due and Accrued, SSAP No. 48 — Joint Ventures, Partnerships and Limited Liability Companies, SSAP No. 93 — Low Income Housing Tax Credit Property Investments and SSAP No. 94R — Transferable and Non-Transferable State Tax Credits to expand and amend statutory guidance to include all tax credit investments regardless of structure and type of state or federal tax credit program, and all state and federal purchased tax credits. 

At the fall national meeting, SAPWG adopted, with modification, revisions to SSAP No. 48 — Joint Ventures, Partnerships and Limited Liability Companies, SSAP No. 93R — Investments in Tax Credit Structures and SSAP No. 94R — State and Federal Tax Credit, to be effective as of Jan. 1, 2025, most notably to incorporate feedback received from interested parties to address inconsistencies with journal entry examples in the previously adopted guidance. 

SSAP No. 101 – Income Taxes 

At the spring 2024 meeting, there were proposed revisions to SSAP No. 101 to adopt with modification ASU 2023-09 to remove disclosure of the cumulative amount of each type of temporary tax difference when a deferred tax liability is not recognized for undistributed foreign earnings and add the following disclosures: 

• Income/loss before income tax expense/benefit, disaggregated by domestic and foreign 
• Income tax expense/benefit and income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign 
• Income taxes paid (net of refunds received) to each individual jurisdiction in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) 
• Qualitative disclosures on tax rate reconciling items 

At the fall national meeting, SAPWG adopted revisions to reject Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures in SSAP No. 101 – Income Taxes, and removed the disclosure detailed in SSAP No. 101, paragraph 23b, and consolidated paragraph 23a into a single paragraph. 

SSAP No. 108—Derivatives Hedging Variable Annuity Guarantees 

At the fall national meeting, SAPWG adopted, with modification, SSAP No. 108—Derivatives Hedging Variable Annuity Guarantees, which updated the definition of a clearly defined hedging strategy (CDHS) to reflect the revised guidance pursuant to guidance adopted by the Life Actuarial (A) Task Force in 2022, in effect with the 2023 version of the Valuation Manual (VM)-01. 

At the summer national meeting, SAPWG had adopted an issue paper for the principles-based bond project. As a second action, it was recommended that SAPWG expose a Question-and-Answer Implementation Guide (Q&A) that addresses issues brought from industry to the bond/American Institute of Certified Public Accountants (AICPA) small group. This Q&A details interpretations on how the SAP guidance should be applied to specific investment structures or investment characteristics.  

On Oct. 4, 2024, the Working Group exposed (via e-vote) an updated Q&A to incorporate three additional topics including commercial mortgage-backed securities (CMBS) interest-only (IO) strips, commercial mortgage loan (CML) single asset single borrower investments (SASBs) and hybrids. With this exposure, it was identified that interested parties had not provided comment on any of the prior bond implementation questions and answers in the first exposure but had provided comment on the classification of issue papers in the statutory hierarchy. The updated Q&A included minor edits to paragraph 9.2 to eliminate this aspect from the Q&A without changing the intent of the guidance. As the discussion of an issue paper’s classification in the statutory hierarchy is broader than the Q&A, discussion of issue paper classification was noted to occur at the fall national meeting. 

At the fall national meeting, SAPWG adopted the exposed Q&A in a new interpretation to SSAP No.21 -- Other Admitted Assets and SSAP No.26 -- Bonds with edits suggested by interested parties. This was classified as level two in the hierarchy for statutory guidance as it was included as an interpretation. With respect to the hierarchy, SAPWG also directed NAIC staff to prepare an agenda item to classify issue papers in level five of the statutory hierarchy. 

The Federal Accounting Standards Board (FASB) issued ASU 2024-02, Codification Improvements —Amendments to Remove References to the Concepts Statements, which removes references to FASB concept statements from the codification. The main rationale for this amendment is to simplify the codification by removing concept statements in the guidance and drawing a clear distinction between authoritative and nonauthoritative literature. The FASB was concerned that references to concept statements would result in users incorrectly inferring that the referenced concept statements were authoritative. 

At the fall national meeting, SAPWG adopted revisions to Appendix D — Nonapplicable GAAP Pronouncements to reject ASU 2024-02, Codification Improvements — Amendments to Remove References to the Concepts Statements as not applicable to statutory accounting. This guidance is not considered relevant to the existing statutory accounting references to FASB concept statements. 

This agenda item has been prepared to clarify how assets held under modified coinsurance (modco) or funds withheld (FWH) agreements shall be reflected within the restricted asset disclosure in paragraph 23 of SSAP No. 1 — Accounting Policies, Risks & Uncertainties, and Other Disclosures and in the corresponding disclosures in Note 5L of the statutory financial statements.  

It also proposes enhanced disclosures to fully identify the extent of restricted assets reported on balance sheets within a single disclosure as well as identify differences between the “restricted asset” annual statement disclosure and the amount reported in the general interrogatories, which is pulled directly into the risk-based capital (RBC) formulas. Lastly, this agenda item suggests a referral to propose revisions to the life RBC instructions to clarify that if the reporting entity uses any assets held under a modco or funds withheld reinsurance (FWH) agreement as collateral or as a pledged asset for a purpose unrelated to the reinsurance agreement (securing an exposure that has not been ceded to the reinsurer), then the reporting entity should not take any modco/FWH reduction in RBC charges (credit) for those assets in the life RBC formula.  

SAPWG exposed draft revisions to SSAP No. 1 — Accounting Policies, Risks & Uncertainties, and Other Disclosures as well as corresponding proposed revisions to the annual statement instructions/template for the restricted asset disclosure in Note 5L to more clearly identify how modco and FWH assets reported within a ceding company’s financial statements shall be captured. 

This item is proposed for exposure with a public comment period ending Jan. 31, 2025. 

This agenda item has been prepared as questions have been received on the classification of investments as “investment subsidiaries” in Schedule D-6-1: Valuation of Shares of Subsidiary, Controlled or Affiliated Companies and in the Life RBC formula on pages LR042, LR043 and LR044.  

The agenda item addresses comments on the options offered to include 1) clarifying statutory accounting guidelines (and resulting reporting impacts) for investment subsidiaries or 2) sponsoring a banks proposal to capture new investment schedules, including possible expansions to existing investment schedules, to detail the underlying assets held by an investment subsidiary; or 3) referrals to the Capital Adequacy (E) Task Force and related risk-based capital working groups to incorporate details that allow regulators to verify the RBC calculation for the underlying assets within an investment subsidiary.  

SAPWG has moved this item to the active listing and exposed these agenda items for comments. This item is proposed for exposure with a public comment period ending Jan. 31, 2025. 

In March 2024, FASB issued ASU 2024-01 Compensation — Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards, which includes amendments to Topic 718 to provide clarification on the application of guidance on stock compensation in the form of profits interest. The primary changes made were the creation of application examples and amendments to certain language in the Scope and Scope Exceptions Section of Topic 718 to improve clarity and operability without changing the guidance. 

For statutory accounting assessments, prior U.S. Generally Accepted Accounting Principles (GAAP) guidance related to share-based payments has been predominantly adopted with modification in SSAP No. 104 — Share-Based Payments. Statutory accounting modifications to the U.S. GAAP guidance have mostly pertained to statutory terms and concepts (for example, statutory reporting lines, nonadmittance of prepaid assets, etc.). 

SAPWG exposed draft revisions to adopt with modification ASU 2024-01, Compensation — Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards within SSAP No. 104 — Share-Based Payments. 

This item has a public comment period ending Jan. 31, 2025. 

During the fall national meeting, SAWPG exposed that the terminology used for derivative financing premium in SSAP No. 86 — Derivatives and the annual statement instructions were inconsistent and that the guidance for derivative financing premiums could be clarified. To clarify, revisions have been recommended to both the “Definitions” and “Derivative Premium” sections to add language which specifically states that derivative premium costs cannot be capitalized into IMR. 

SAPWG exposed draft revisions to adopt with modification, SSAP No. 86—Derivatives and the annual statement instructions to ensure consistent terminology for derivative financing premium and to further clarify that derivative premium costs are not to be capitalized to interest maintenance reserve (IMR). 

This item has a public comment period ending Jan. 31, 2025. 

The Medicare Prescription Payment Program (MP3), which goes into effect in 2025, requires insurers to pay pharmacies the out-of-pocket costs at the point of sale for enrollees who have opted into MP3. The enrollees then have the remaining policy term to make installment payments to the insurer. Statutory accounting questions related to the updates include 1) where to report the initial point of sale payment to the pharmacy and the related installment receivables, 2) how to account for the prescription drug point of sale payments and 3) when to write-off and or nonadmit overdue amounts. 

SAPWG exposed draft revisions to INT 24-02 — Medicare Part D Prescription Payment Program and exposed minor edits to INT 05-05 — Accounting for Revenues Under Medicare Part D Coverage. 

 This item has a public comment period ending Jan. 31, 2025. 

SAPWG identified instances in SSAP No. 16 where the FASB accounting standards codification (ASC) topic has been referenced directly instead of the ASU. When guidance is adopted by FASB, it is issued through an accounting standards update which formally adopts the guidance into the FASB Accounting Codification. The Working Group will then address the guidance in the ASU, which is the guidance at a moment in time instead of the actual ASC, which represents guidance that will change over time as other ASUs are adopted. As the guidance stands now, a new ASU could be issued that impacts the ASC sections that are referenced in the SSAP, thereby changing statutory accounting guidance without the Working Group addressing and considering the issue. 

SAPWG exposed draft revisions to SSAP No. 16 — Electronic Data Processing Equipment and Software to clarify the references to ASC sections in the SSAP. 

This item has a public comment period ending Jan. 31, 2025. 

The disclosure in SSAP No. 26, paragraph 39e is an existing disclosure (pre-bond-definition revisions). However, the pre-bond-definition version of the disclosure included direction for disclosure by Schedule D broad reporting categories, with categories listed in the SSAP. These reporting categories were removed from the adopted revised SSAP No. 26 disclosure effective Jan. 1, 2025. Although this disclosure is satisfied by the completion of Schedule D-1-1 and D-1-2 for statutory accounting purposes, comments have been made that the adopted revised language could require a listing of all bonds in the audited financial statements. As such, editorial revisions have been proposed to reinstate the prior language for “receiving bond treatment” (as adopted, revised SSAP No. 43 — Asset-Backed Securities, paragraph 44m points to this SSAP No. 26 disclosure for ABS items), and to include reference to reporting categories.  

SAPWG exposed draft revisions to SSAP No.26 -- Bonds to reinstate disclosure language and reporting category provisions.  

This item has a public comment period ending Dec. 9, 2024, in anticipation of being considered during the Dec. 17, 2024 SAPWG virtual meeting. 

SSAP No. 21R - Other Admitted Assets 

During the 2023 fall national meeting, SAPWG exposed revisions would add a new disclosure in SSAP No. 21R, beginning with year-end 2024 reporting, with the disclosure being made in a new note and an expanded Schedule BA. The new note disclosure would identify, by the type of collateral that secures the loan, 1) the total amount of collateral loans and 2) the collateral loans admitted and nonadmitted by qualifying investment type. Schedule BA was proposed to be expanded with new reporting lines to separate collateral loans by the type of collateral investment that secures the loan.  

During its virtual meeting on Feb. 20, 2024, SAPWG separated the disclosure and Schedule BA changes of this agenda item for separate actions.  

• Adopted revisions to add the new data captured disclosure 
• Exposed proposed reporting lines to Schedule BA for collateral loans. While there are no asset valuation reserve (AVR) reporting revisions, the exposure specifically requested feedback from industry and regulators on whether collateral loans backed by certain types of collateral should flow differently through AVR for RBC impact.  

On Aug. 13, 2024, the Working Group exposed this agenda item with a request for comments on potential Schedule BA collateral loan reporting lines. The Working Group also sponsored a blanks proposal to begin detailing the revisions to Schedule BA and AVR that would occur with these changes. This action followed prior Working Group discussions and actions to allow, as an interim step, collateral loans with underlying mortgage loans to flow through AVR. This instructional change was supported by the Working Group on May 15, and corresponding RBC revisions were adopted on June 18, 2024. Correspondence to the Blanks Working Group on this interim step was received on Aug. 7, 2024.  

This item is proposed for re-exposure without any revisions with a public comment period ending Feb. 6, 2025. Revisions by SAPWG will be considered once additional interested party comments are received after the public comment deadline.