Updates from the Statutory Accounting Principles Working Group’s Aug. 13 summer national meeting

SSAP No. 26R – Bonds and SSAP No. 43R - Loan-Backed and Structured Securities  

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 (SSAPs). The purpose was to clarify definitions, scope and the accounting methods and related reporting. Throughout 2022, SAPWG exposed updated versions of the principles-based bond definition and draft issue paper, and revisions, which are classified as new SAP concepts, to SSAP No. 26R, SSAP No. 43R and other various SSAPs.   

During the 2023 summer national meeting, SAPWG adopted the principles-based bond definition, revisions to the accounting for bonds (both issuer credit obligations and asset-backed securities), as well as revisions to various SSAPs that have been updated to reflect the revised definition and/or SSAP references. The revisions are significant and will go into effect on Jan. 1, 2025. The effective date is intended to allow reporting entities to assess their investment portfolios in accordance with the adopted bond concepts and to allow training and education materials to be developed that reflect the adopted bond definition.  

Readers are encouraged to review these documents on the SAPWG website which detail the revised SSAPs:  

• SSAP No. 26 – Bonds  
• SSAP No. 43 – Asset-Backed Securities  
• Other SSAPs Impacted by Bond Definition  

SAPWG also exposed revisions to SSAP No. 21R and directed action on Schedule BA, which are discussed below in the sections for exposed revisions to statutory guidance and other actions.  

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 Financial Accounting Standards Board’s (FASB) two new chapters of its conceptual framework which FASB issued in Dec. 2021, and reviews their potential impact on statutory accounting.  

SAPWG previously adopted on Aug. 10, 2022, 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rationale for why the revisions are considered SAP clarifications in nature, and the preamble to update reference to a superseded FASB concept statement. 

During the summer national meeting, SAPWG adopted the liabilities guidance, which includes deferring to SSAP guidance which provides topic specific variations from the definition of a liability in SSAP No. 5R, and the related Issue Paper No. 168 - Updates to the Definition of a Liability.

SSAP No. 7 - Asset Valuation Reserve and Interest Maintenance Reserve and INT 23-01: Net Negative (Disallowed) Interest Maintenance Reserve 

During the 2022 fall national meeting, SAPWG exposed this agenda item, classified as a new SAP concept, on negative IMR guidance with the intent to facilitate SAPWG discussion. SAPWG directed NAIC staff to coordinate with other groups in developing a 2023 solution and a long-term solution regarding negative IMR. SAPWG intends to document the discussion, resulting decisions and conclusion of this agenda item in an issue paper. 

During the summer national meeting, SAPWG adopted INT 23-01 which provides a limited-time, optional INT to allow reporting entities with risk-based capital (RBC) greater than 300% (after certain adjustments) admittance of net negative (disallowed) IMR up to 10% of the reporting entity’s adjusted general account capital and surplus. The INT includes specific guidance regarding restrictions as to what should be included in or excluded from the IMR and calculations, specific guidance for general account versus separate accounts, as well as specific reporting and disclosure requirements. INT 23-01 will be effective until Dec. 31, 2025, and automatically nullified on Jan. 1, 2026, but the effective date can be adjusted in response to SAPWG actions to establish statutory accounting guidance specific to net negative (disallowed) IMR.

SSAP No. 43R - Loan-backed and Structured Securities  

Revisions to SSAP No. 43R incorporate changes to add collateralized loan obligations (CLOs) to the financial modeling guidance and to clarify that CLOs are not captured as legacy securities. These revisions reflect guidance adopted by the Valuation of Securities (E) Task Force on Feb. 21, 2023.  

INT 20-01: ASU 2020-04 & 2021-01 - Reference Rate Reform 

Revises the expiration date of the guidance in INT 20-01: ASU 2020-04 & 2021-01 - Reference Rate Reform to be Dec. 31, 2024, to align to the deferral of the sunset date in the referenced ASU.

SSAP No. 24 - Discontinued Operations and Unusual or Infrequent Items 

During the 2022 summer national meeting SAPWG adopted revisions to SSAP No. 24 in agenda item 2022-04 which incorporated certain disclosures, adopted with modification from ASU 2021-10, to supplement existing disclosures regarding unusual or infrequent items. 

This agenda item provides clarification on follow-up questions NAIC staff have received since the adoption of agenda item 2022-04. The adopted revisions clarify that ASU 2021-10 is rejected, however, general disclosures about government assistance are incorporated for all reporting entity types.

SSAP No. 104R - Share-Based Payments, SSAP No. 95 - Nonmonetary Transactions, and SSAP No. 47 - Uninsured Plans 

Adopts with modification ASU 2019-08. This ASU revised Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, thus superseding guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The ASU also revised Topic 606 to expand the scope of the codification to include share-based payment awards granted to a customer in conjunction with selling goods or services. Key statutory revisions adopted include: 

• SSAP No. 104R - adds language to include share-based consideration payable to customers in the same manner as U.S. GAAP 
• SSAP No. 95 - updates previously adopted U.S. GAAP guidance 
• SSAP No. 47 - rejects Topic 606 guidance included in ASU 2019-08

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. 50 - Classifications of Insurance or Managed Care Contracts, SSAP No. 51R - Life Contracts, SSAP No. 52 - Deposit-Type Contracts, SSAP No. 56 - Separate Accounts, SSAP No. 71 - Policy Acquisition Costs and Commissions, and SSAP No. 86 – Derivatives 

Revisions to the referenced SSAPs reject the referenced ASU as not applicable for statutory accounting. The referenced ASU provides updated transition guidance for ASU 2018-12, which was previously rejected for statutory accounting.

SSAP No. 34 - Investment Income Due and Accrued 

At the spring national meeting, SAPWG adopted agenda item 2022-17 which revised SSAP No. 34 to add additional disclosures to data capture the gross, non-admitted and admitted amounts for interest income due and to add disclosure of the cumulative amount of paid-in-kind (PIK) interest included in the current principal balance. 

At the summer national meeting, SAPWG adopted revisions clarify guidance on how paydowns and disposals would impact PIK interest included in the cumulative balance. The revisions clarify that decreasing amounts to principal balances (paydowns, disposals, sales, etc.) are first applied to any PIK interest included in the principal balance. The original principal would not be reduced until the PIK interest had been fully eliminated from the balance. The revisions also provide a practical expedient for determining the PIK interest in the cumulative balance by subtracting the original principal or par value from the current principal or par value, with the resulting PIK interest not to go less than $0.