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rationale for why the revisions are considered SAP clarifications in nature, and the preamble to update reference to a superseded FASB concept statement.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.

SSAP No. 21R - Other Admitted Assets, SSAP No. 26R – Bonds, and SSAP No. 43R - Loan-Backed and Structured Securities 

SAWPG exposed revisions, classified as a new SAP concept, to SSAP No. 21R to provide guidance for the accounting for debt securities that do not qualify as bonds as well as measurement guidance for residuals. SAWPG also exposed an updated issue paper that details the discussions in developing the bond definition and resulting guidance, which was adopted during the summer national meeting, discussed above. Readers are encouraged to read the proposed SSAP No. 21R revisions in conjunction with the adopted SSAP No. 26 and SSAP No. 43.

SSAP No. 21R - Other Admitted Assets 

During the spring national meeting, SAPWG re-exposed revisions to SSAP No. 21R which clarify that the invested assets pledged as collateral for admitted collateral loans must qualify as admitted invested assets. Exposed revisions clarify: 

• For qualifying investments which are pledged as collateral that would be in the scope of SSAP No. 48 or SSAP No. 97 if held directly by the reporting entity, the proportionate audited equity valuation shall be used for the comparison for the adequacy of pledged collateral. If the collateral loan exceeds the audited equity valuation of these pledged investments, then the excess shall be non-admitted.
• Where the collateral is an equity/unit investment in a joint venture, partnership, limited liability company, and/or SCA is pledged as collateral in a collateral loan, audited financial statements on a consistent annual basis are always required in accordance with SSAP No. 48 and or SSAP No. 97. 

At the summer national meeting, SAPWG discussed comments received which argued that fair value is a more relevant measure of pledged collateral in the form of interests in SSAP No. 48 entities. This agenda item was re-exposed to allow additional time to submit additional comments regarding the use of fair value as requested by industry. This exposure has a shortened public comment period ending Sept. 12, 2023.

SSAP No. 93 - Investments in Tax Credit Structures and SSAP No. 94R - State and Federal Tax Credits 

This agenda item was initially exposed during the 2022 fall national meeting. The agenda item, classified as a new SAP concept, was exposed along with a discussion document on potential statutory accounting concepts for tax equity investments (i.e., expansion of SSAP No. 93). The discussion document recommended that the guidance to be developed not name specific designs or other specific tax credits so that it can be applicable for all qualifying tax equity investments (i.e., not just low-income housing tax credits). The agenda item also recommended a review of SSAP No. 94R - Transferable and Non-Transferable State Tax Credits to ensure the guidance reflects items that should be captured in scope and admittance provisions. 

At the May 16, 2023 interim meeting, SAPWG exposed revisions to SSAP No. 93 and SSAP No. 94R, which includes retitling these SSAPs as reflected above. The revisions were significant and readers are encouraged to read our summary of them. 

SAPWG exposed additional revisions at the summer national meeting, which include: 

• SSAP No. 93 was revised so that accounting guidance for allocated tax credits was contained within instead of referring to SSAP No. 94R. 
• SSAP No. 94R was revised to exclude SSAP No. 93 allocated tax credits.

SSAP No. 101 - Income Taxes  

During the 2022 fall national meeting, SAPWG adopted INT 22-02: Third Quarter 2022 through First Quarter 2023 Reporting of the Inflation Reduction Act - Corporate Alternative Minimum Tax (CAMT) to provide temporary guidance related to the CAMT through first quarter 2023 reporting. This was later extended to allow the INT to be applied for the second quarter of 2023 reporting.  

At the summer national meeting, SAPWG exposed INT 23-02T: Third Quarter 2023 Inflation Reduction Act – Corporate Alternative Minimum Tax. INT 23-02T states that for third quarter 2023 reporting, entities should disclose the information that is available regarding their applicable reporting entity status. When an entity is able to make a reasonable estimate regarding the CAMT 2023 liabilities, that estimate should be disclosed. If a reasonable estimate is not possible because of pending material information, the fact that a reasonable estimate is not feasible should be disclosed. This exposure has a shortened public comment period ending Sept. 12, 2023.  

SSAP No. 101 - Income Taxes and INT 23-03: Inflation Reduction Act - Corporate Alternative Minimum  Tax 

This agenda item proposes INT 23-03: Inflation Reduction Act - Corporate Alternative Minimum 

Tax to provide guidance regarding the corporate alternative minimum tax (CAMT) for periods on and after the year-end 2023. The INT provides guidance for 1) entities not required to perform the CAMT calculation, 2) entities required to do the CAMT calculation and may or may not have to pay CAMT, and 3) entities required to perform the CAMT calculation but have a tax sharing agreements which excludes them from paying CAMT. The INT follows existing guidance in SSAP No. 101 to the extent practicable for the CAMT, includes disclosure requirements, and provides transition guidance including allowing reliance on unapproved tax sharing agreements filed by year end, with domiciliary Department of Insurance consent. Reporting entities which may be subject to CAMT should review their tax sharing agreements and the proposed INT as they may consider amending and refilling those tax sharing agreements to address the CAMT. This exposure has a shortened public comment period ending Sept. 12, 2023.

SSAP No. 43R - Loan-Backed and Structured Securities and SSAP No. 48 - Joint Ventures, Partnerships and Limited Liability Companies 

Beginning with year-end 2022, reporting residual interests, as defined in SSAP No. 43, were required to be reported on Schedule BA on designated reporting lines. From its review of 2022 reporting results, SAPWG believes information for residuals may be underreported due to the various legal forms of residual investments. This agenda item was originally exposed on May 16, 2023, and proposes revisions to clarify the reporting of in-substance residuals regardless of the structure of the investment vehicle. 

• SSAP No. 43R – revisions move residual interest guidance from a footnote to new paragraphs within SSAP No. 43R and clarify that the residual interest guidance applies regardless of the legal form of the investment. 
• SSAP No. 48 – clarifies that investments in the scope of SSAP No. 48 that represent residual interests shall be reported on the dedicated residual reporting line of Schedule BA. This clarification is a change only in reporting classification within Schedule BA. Revisions clarify that the residual interest guidance applies regardless of the legal form of the investment. 

 At the summer national meeting, SAPWG exposed expanded revisions to reflect interim discussions and coordination with interested parties and industry. This exposure has a shortened public comment period ending Sept. 12, 2023. This shortened deadline is intended to allow for adoption and implementation for year-end 2023 which the NAIC staff believes is critical to ensure that the adopted RBC sensitivity test can be properly reflected.

SSAP No. 7 - Asset Valuation Reserve and Interest Maintenance Reserve 

This agenda item is a broad concept agenda item which will ultimately incorporate accounting guidance for the asset valuation reserve (AVR) and the IMR into SSAP No. 7. This will be a long-term project and is classified as a new SAP concept. Historically, the specific guidance for AVR and IMR has been included in annual statement instructions with a brief overview included in SSAP No. 7. Separate interim revisions, within specific agenda items, will be proposed over the course of the long-term project. Discussion topics expected to be part of the broad project, include but are not limited to: 

Absolutes in allocating between IMR and AVR – see discussion of agenda item 2023-15 below. 

• Bond IMR/AVR allocation 
• Allocation of perpetual preferred stock 
• Delineation of non-interest (credit)/interest and realized/unrealized 
• Derivative guidance 
• Reinsurance ceded/assumed 
• AVR/IMR cross checks 
• Overall IMR and AVR reporting in the general and separate accounts

Annual statement instructions 

This agenda item addresses one of the specific discussion topics from agenda item 2023-14, discussed above. The exposed revisions, classified as a new SAP concept, remove guidance from the annual statement instructions that permits the specific allocation of non-interest related losses to IMR. NAIC staff believe these revisions clarify the principal concept of the IMR and AVR, which is that interest related losses go to IMR, and non-interest-related losses go to AVR. The revisions are however a distinct change in practice to reduce the allocation of non-interest-related losses to the IMR and because of this are classified as a new SAP concept.

Annual statement instructions 

This agenda item intends to improve the annual statement instructions for Schedule BA and examples for the allocation of investments based on the underlying characteristics of assets, it does not propose statutory accounting revisions. The proposed revisions from SAPWG will be used to sponsor a blanks annual statement instruction change. The exposure requests feedback to further define and provide examples for the investments captured as non-registered private funds, joint ventures, partnerships, limited liability companies or residual interests and reported based on the underlying characteristics of assets. Comments are requested on what should be captured as investments with underlying asset characteristics of: 1) fixed-income instruments, 2) common stocks, 3) real estate, 4) mortgage loans or 5) other.

SSAP No. 2R - Cash, Cash Equivalents, Drafts, and Short-Term investments 

This agenda item proposes revisions, classified as a new SAP concept, to restrict the investments that are permitted for cash equivalent or short-term investment reporting. The revisions are intended to ensure that certain investment types are captured on designated Schedule BA reporting lines and to remove the potential to design investments to specifically qualify for short-term reporting. The agenda item proposes edits after reflection of the bond project changes, discussed above. The agenda item proposes an effective date of Jan. 1, 2025 for consistency with the bond project.

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. GAAP. This agenda item proposes certain revisions to the referenced SSAPs to adopt with modification certain of the items from ASU 2016-19. All other items from ASU 2016-19 are proposed to be rejected for statutory accounting.

Appendix D—Nonapplicable GAAP Pronouncements  

Exposed revisions to Appendix D reject the referenced ASU as not applicable to statutory accounting.

Appendix D—Nonapplicable GAAP Pronouncements  

Exposed 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  

Exposed 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.  

SSAP No. 54R - Individual and Group Accident and Health Contracts 

Exposed revisions to SSAP No. 54R clarify that gross premium valuation, under Appendix A-010, and cash flow testing, under Actuarial Guideline LI: The application of Asset Adequacy Testing to Long Term Care Insurance Reserves (AG) 51), are both required if indicated. The clarifications are in response to a request from the Financial Reporting and Solvency Committee of the Health Practice Council of the American Academy of Actuaries who had observed diversity in practice across issuers of long-term care insurance.

Schedule BA reporting 

SAPWG directed NAIC staff to sponsor a blanks proposal to revise Schedule BA: Other Long-Term Assets in accordance with the bond project for debt securities that do not qualify as bonds discussed above. SAPWG will send formal notice to the Valuation of Securities (E) Task Force and the Capital Adequacy (E) Task Force on the proposal to allow life reporting entities to use existing Schedule BA reporting provisions for Securities Valuation Office (SVO)-assigned designations in determining RBC for debt securities that do not qualify as bonds.

INT 03-02: Modification to an Existing Intercompany Pooling Arrangement,  

INT 03-02 addresses the valuation of bonds in instances when bonds are used instead of cash for the payment among affiliates for amounts due on modifications to existing intercompany reinsurance pooling contracts. The recent deliberations on related party transactions highlighted a discrepancy between INT 03-02 and SSAP No. 25. This agenda item proposes to nullify INT 03-02, as it is inconsistent with SSAP No. 25 guidance regarding economic and non-economic transactions between related parties. The guidance in INT 03-02 can result in unrecognized gains (dividends) or losses through the use of statutory book valuation when using assets (bonds) to make payments to affiliates for modifications to existing intercompany reinsurance pooling agreements. SAPWG believes the treatment of transfers of assets between affiliates should be consistent for all intercompany transactions and that there is not a compelling need for a difference when valuing assets for intercompany reinsurance transactions. 

Interested parties believe the nullification of INT 03-02 could have unintended consequences and lead to diversity in application. Interest parties noted that if this INT were nullified insurance liabilities would be transferred at book value while the assets supporting those liabilities would be transferred at fair value – which can produce problematic results depending on if market interest rates are rising vs. falling at the time of the transfer. They plan to provide additional commentary and specific examples. 

SAPWG directed staff to NAIC staff to work with interested parties to develop additional recommendations for future SAPWG discussion.

Various SSAPs and Annual Statement Instructions 

This agenda item was exposed during the spring national meeting and establishes a project to review the annual and quarterly statement instructions to ensure that all accounting guidance is properly reflected within the SSAPs. During the discussion of agenda items 2022-01 and 2022-19, it was identified that relevant guidance was included in the instructions. The exposure requested comments on situations in which guidance in the annual statement instructions should be captured within a SSAP. 

At the summer national meeting, SAPWG directed NAIC staff to proceed with this project. NAIC staff plans to add separate agenda items for specific topics (such as 2023-15, discussed above), but to reference this broad SAPWG direction as the source for the various proposals.