Article
Updates from the Statutory Accounting Principles Working Group’s Oct. 23 interim meeting
Nov 01, 2023 · Authored by Daniel E. Buttke, Jeff Maffitt
This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group’s (SAPWG) interim meeting that took place on Oct. 23, 2023.
Insurance organizations should take note of these changes as they may significantly impact their accounting in 2024 and beyond. Check out our insurance services page to learn more about Baker Tilly’s practice.
This report summarizes key activities of the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) at its interim meeting on Oct. 23, 2023.
SAPWG updates
SAPWG discussed a variety of topics including collateral for loans and more.
Insurance organizations should take note of these changes as they may significantly affect their accounting in 2024 and beyond.
Adopted revisions to statutory guidance
All adopted revisions to statutory guidance noted below are classified as Statutory Accounting Principle (SAP) clarifications and considered effective immediately after adoption by SAPWG, unless specifically noted otherwise.
SSAP No. 20 – Nonadmitted assets and SSAP No. 21R - other admitted assets
SAPWG adopted revisions to SSAP No. 20R and SSAP No. 21R which clarify the admissibility of collateral loans.
- Invested assets pledged as collateral for admitted collateral loans must qualify as admitted invested assets. Any portion of a collateral loan which is not adequately collateralized is not permitted to be admitted.
- To support the admissibility of collateral loans, reporting entities shall maintain documentation sufficient to support the reasonableness of the fair value measurement of the underlying collateral.
- Where the collateral is an equity/unit investment in a joint venture, partnership, limited liability company (LLC) and/or subsidiary controlled affiliation (SCA) is pledged as collateral in a collateral loan. Auditing financial statements on a consistent annual basis are always required in accordance with SSAP No. 48 - Joint ventures, partnerships and limited liability companies and/or SSAP No. 97 - Investments in subsidiary, controlled and affiliated entities.
The revisions also include transition guidance regarding audits of qualifying collateral pledged for collateral loans. Audits are required to be obtained for the 2023 reporting period in the subsequent year. In periods after year-end 2023, the audits of equity collateral pledged for collateral loans are required to be obtained for the reporting year in which it was pledged and annually thereafter. The annual audit lag shall be consistent from period to period.
SSAP No. 5R - Liabilities, contingencies and impairments of assets, SSAP No. 92 - Postretirement benefits other than pensions and SSAP No. 102 - Pensions and SSAP No. 103R - Transfers and servicing of financial assets and extinguishments of liabilities
The referenced ASU 2016-19 included minor clarifications, corrections, addition of codification references, guidance relocations and removal of redundant, outdated or superseded guidance for U.S. generally accepted accounting principles (GAAP). This agenda item revises the referenced SSAPs to adopt with modification certain of the items from ASU 2016-19. All other items from ASU 2016-19 are rejected for statutory accounting.
Appendix D - Nonapplicable GAAP pronouncements
Revisions to Appendix D reject the referenced ASU as not applicable to statutory accounting.
Appendix D - Nonapplicable GAAP pronouncements
Revisions to Appendix D reject the referenced ASU as not applicable to statutory accounting.
SSAP No. 92 - Postretirement benefits other than pensions and SSAP No. 102 - Pensions
revisions remove the transition guidance that was included in the initial adoption of the referenced SSAPs, as the ten-year effective period for that transition has expired.
Exposed revisions to statutory guidance
The exposed revisions to statutory guidance noted below are classified as SAP clarifications with the public comment period ending Nov. 15, 2023.
SSAP No. 61R - Life, deposit-type and accident and health reinsurance
Following the Oct. 2023 interim meeting, SAPWG exposed on Oct. 24 this proposed INT to address questions that have arisen on the reporting of unsettled reinsurance recoverable amounts as a result of a recent liquidation order of a U.S. life insurer. The guidance in the proposed INT is intended to be applied generically, although liquidations of U.S. licensed reinsurers are uncommon. The exposed INT addresses several issues and provides clarifying guidance. The INT specifically requests feedback on paragraph 18 which states that due to the uncertainty in collecting the reinsurance recoverables, reporting entities shall nonadmit all amounts recoverable from a life reinsurer in liquidation.
