2016 SAP Updates - naic.org · © 2016 National Association of Insurance Commissioners 3 © 2016 National Association of Insurance Commissioners Learning Objectives 1. Substantive

© 2016 National Association of Insurance Commissioners

1 © 2016 National Association of Insurance Commissioners

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2016 SAP Updates2016 SAP UpdatesJulie Gann, Senior Manager II – Accounting and Reporting

Robin Marcotte, Senior Manager II – Accounting

Josh Arpin, Senior Accounting and Reinsurance Policy Advisor

Fatima Sediqzad, SCA Valuation and Accounting Policy Advisor


This presentation is pre-qualified for NAIC Designation Renewal Credits (DRCs). If you currently hold an NAIC APIR, PIR, or SPIR designation and are pursuing continuing education credit to maintain it, you may be awarded credits for your participation. To receive credit, you must be in attendance for the duration of the presentation.

Attention APIR, PIR, or SPIR Designees…



Learning Objectives

1. Substantive Revisions to SAP

2. Nonsubstantive and Interpretation Revisions to SAP

3. Hot Topics

Objectives:

• Identify new and revised statutory accounting guidance

• Understand hot topics being considered by SAPWG


Julie Gann• Senior Manager II – Accounting and Reporting

– Supports Accounting Practices and Procedures Task Force– Supports Statutory Accounting Principles Working Group

and Restricted Asset Subgroup– Provides technical & advisory services in SAP, GAAP &

IFRS

Joined the NAIC in February 2001– Has also served as an examination consultant for a public

accounting firm

CPA, FLMI, AIRC, ARAMember of AICPA, MSCPA



Robin Marcotte• Senior Manager II – Accounting

– Supports Accounting Practices and Procedures Task Force

– Supports Statutory Accounting Principles Working Group

– Supports Risk Limiting Contracts Working Group

– Coordination with Principles- Based Reserving (EX) Implementation

– Provides technical & advisory services in SAP, GAAP & IFRS

Joined the NAIC in August 2000

– Prior to joining the NAIC employed at a Dept. of Insurance

CPA, CFE, Associate in Reinsurance, CISA

Member of AICPA, MSCPA, and SOFE


Josh Arpin

• Senior Accounting and Reinsurance Policy Advisor


– Supports Reinsurance Task Force

– Supports Risk-Limiting Contracts Working Group

– Provides technical & advisory services in SAP, GAAP &Reinsurance

Joined the NAIC in December 2014

Prior to joining the NAIC – employed in public accounting

CPA and Member of ACFE, AICPA, KSCPA and MSCPA



Fatima Sediqzad

• SCA Valuation and Statutory Accounting Policy Advisor


– Reviews subsidiary, controlled and affiliated entity filings

– Provides technical & advisory services in SCA’s, SAP andGAAP

Joined the NAIC in January 2016

Prior to joining the NAIC – employed in public accounting and a private financial services firm

CPA


Adopted Substantive Revisions

1. SSAP No. 41R--Surplus Notes

– Adopted 2016 Spring National Meeting

– Effective January 1, 2017

– Issue Paper No. 151 (Ref #2014-25)

2. SSAP No. 62R /IP No. 153 – Counterparty Reporting Exception for Asbestos and Pollution Contracts

– SSAP No. 62R revisions adopted Sept. 24, 2015

– Issue Paper No. 153 adopted February 22, 2016

– Effective December 31, 2015 (Ref #2014-28)



SSAP No. 41R - Surplus Notes• Key Change: Measurement Method Revisions

– NAIC 1 and NAIC 2 = Amortized Cost

– All Other and Non-Rated =

Lower of Amortized Cost or Fair Value

Change from “Outstanding Face Value / Statement Factor

• Other Changes:

– Clarification of Nonadmittance / Unrealized Losses

– Addition of Impairment Guidance

– Reference to SVO Guidance for NAIC Designations


SSAP No. 41R - Surplus Notes

• Clarification of Nonadmittance / Unrealized Losses– Valuation changes are unrealized changes

– Limits or regulatory actions result with nonadmittance

• Other-Than-Temporary Impairment Guidance– Similar to other OTTI guidance, but identifies that

extended delays of payment shall also trigger an evaluation for OTTI.

• Reference to SVO Guidance– Guidance on use of the “second-lowest” designation

has been incorporated into the P&P Manual and removed from the SSAP.



SSAP No. 41R - Surplus Notes

NAIC Designation “Second Lowest”

• ALL available CRP ratings are required to be obtained.

• After obtaining ALL available CRP ratings, the ratings will be ordered, according to their equivalents, and the rating falling second lowest will be selected, even if that rating is equivalent to that of the first lowest. (If there are only two CRP ratings, the lowest is used.)

NAIC 1NAIC 2NAIC 3NAIC 2

NAIC 1NAIC 1NAIC 2NAIC 1

NAIC 1NAIC 2NAIC 2NAIC 3NAIC 4NAIC 3

NAIC 1NAIC 2NAIC 2

NAIC 3NAIC 4NAIC 5NAIC 6NAIC 5


SSAP No. 62R / IP No. 153 – Asbestos and Pollution Contracts

• Changes to SSAP No. 62R were adopted in agenda items 2011-45 and 2014-28 as nonsubstantive changes.

• IP 153 documents changes and historical discussion.

• Allows reductions to the provision for reinsurance liability for qualifying asbestos and pollution reinsurance contracts



SSAP No. 62R / IP No. 153 – Asbestos and Pollution Contracts

• Commissioner approval for collateral substitution

• Allows the “new reinsurer” to replace old reinsurers

• New Schedule F reporting supplement and illustration

• Disclosures including :

– Significant terms, established limits and collateral,

– The amount remaining coverage limit.

– Prescribed or permitted practice the use ofcommissioner discretion on collateral security andtotal impact to the provision for reinsurance.


Nonsubstantive Revisions• SSAP No. 1 – ILS Disclosure (Ref 2015-34)

• SSAP No. 11 – Postemployment Benefit Disclosures (Ref 2014-35)

• SSAP No. 23 – Foreign Currency Translation (Ref 2015-24)

• SSAP No. 24 - Discontinued Operations and Unusual Items– ASU 2015-01: Simplifying Income Statement Presentation by

Eliminating the Concept of Extraordinary Items (Ref 2015-06)

– ASU 2014-08: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Ref 2015-07)

• SSAP No. 25 – ASU 2013-06: Not-For-Profit Entities: Services Received from Personnel of Affiliate (Ref 2014-36)

• SSAP No. 26 – Amortization of Callable Bonds (Ref 2015-04)

• SSAP No. 40R – Real Estate Investments (Ref 2015-11)



Nonsubstantive Revisions• SSAP No. 54 – ASU 2010-23: Measuring Charity Care for

Disclosure (Ref 2015-01)

• SSAP No. 55 – Title Note 25 and SSAP No. 55 (Ref 2015-29)

• SSAP No. 61R:– Disclosure of XXX/AXXX Reinsurance Framework Impact on RBC

(Ref 2015-53)

– Disclosure Related to XXX /AXXX Reinsurance Framework (Ref 2014-31)

• SSAP No. 65 – High Deductible Policies Disclosure (Ref 2015-35)

• SSAP No. 68 – Clarification on Goodwill Limitation (Ref 2015-14)

• SSAP No. 74 – Protected Cell Reporting (Ref 2014-32)

• SSAP No. 93 – ASU 2014-01: Accounting for Investments in Qualified Affordable Housing Projects (Ref 2014-24)


Nonsubstantive / Interpretation Revisions• SSAP No. 97:

– Nonadmitted Assets and Application of SAP Guidance (Ref 2015-08)– SSAP No. 97 – Inclusion of Filing Guidance (Ref 2015-25)– SSAP No. 97 – Application of Equity Method (Ref 2015-32)– SSAP No. 97 – Explicitly Excluding ETFs from SCA Guidance (Ref 2015-49)

• SSAP No. 107:– Premium Adjustments Subject to Redetermination (Ref 2015-30)– Update Risk Corridor Disclosures (Ref 2015-54)

• Preamble – Revisions to the AP&P Manual Preamble (Ref 2015-28)• Appendix F – Policy Statement Revisions (Ref 2015-18)• AP&P Manual – Miscellaneous Revisions

– Placement Revisions to the AP&P Manual (Ref 2015-20)– Revisions to various SSAPs to adopt technical edits (Ref 2015-09)– Revisions to SSAP titles (Ref 2015-05)

• INT 15-01– ACA Risk Corridors Collectibility• INT 16-01: ACA Section 9010 Assessment 2017 Moratorium (Ref 2016-01)



SSAP No. 93 - Low Income Housing Tax Credit Property Investments

• ASU 2014-01: Accounting for Investments in Qualified Affordable Housing Projects (Ref #2014-24)

• Maintains SAP treatment, - proportional amortized cost and gross income statement presentation.

• Amortization of the investment in LLC = net investment income/expense.

• Current tax credit = income tax expense.

• Disclosures – balance and credits used


SSAP No. 61- Audited Disclosures XXX/ AXXX Reinsurance Framework

• Ceding entities using Captive reinsurers on term and ULSG reserves

• Identify the standard: either AG 48 or model reg.

• Whether required levels of primary and other security related to the reinsurance contract are met, and the amount of the shortfalls if any. (Ref #2014-31)

If shortfalls exist - disclose: • Assuming insurer • Contract effective dates • Reserves ceded• Required and held

security• Security shortfalls by

category– primary and other



SSAP No. 61 - XXX/AXXX Reinsurance Captive Framework Impact on RBC

• Ceding entities using captives to assume reserves subject to the XXX/AXXX Captive framework. (Ref #2015-53)

• For each captive with a RBC shortfall per the XXX/ AXXX Captive Reinsurance Consolidated Exhibit)

If shortfalls exist - disclose: • Captive name • Amount of RBC shortfall • Total Adjusted Capital

(TAC), and the sum of TAC plus RBC shortfalls

• Amount of Primary Security shortfall by captive and total shortfall from all reinsurers


SSAP No. 61- Variable Annuity Captive Disclosures

• Significant terms, risks retroceded and retained by entity and its affiliates (Ref #2015-36)

• Benefits reinsured and purpose of contract• Standalone captive or multi product captive • Reserve held by captive and methodologies

utilized (and if it differs from AG 43)• Reserve credit, amount of collateral supporting

reserve, and nature of collateral • Language sunsets after 2015 (2016 updates?)



SSAP No. 65 –High Deductible Disclosures

• Revisions incorporate a disclosure to identify aggregate unsecured high-deductible recoverables from groups under the same management or control including professional employer organization’s (Ref #2015-35)

• List the individual obligors, each related group members, and the total unsecured aggregate recoverables on high deductible policies for the entire group.


SSAP No. 107 - Premium Adjustments Subject to Redetermination

• Accrued risk adjustment receivables reported in premium and considerations receivable (Ref #2015-30)

• Accrued risk adjustment payables

– Managed care/accident and health reporting entities -aggregate health policy reserves;

– Life and accident and health reporting entities -aggregate reserves for accident and health contracts

– Property and casualty reporting entities -aggregate write–ins for liabilities.

• Payables and receivables also affect written premiums.



INT 15-01– ACA Risk Corridors Collectibility

• 12.6% proration of 2014 benefit year risk corridors

• 2016 and 2017 collections applied to 2014 year

• Evaluate for impairments and nonadmission

• 2015 and 2016 benefit years estimated in accordance with SSAP No. 107, paragraphs 56.b and 56e are nonadmitted

• Cannot assume federal funding until allocated


SSAP No. 107 - Disclosures

• Update Risk Corridor Disclosures (Ref #2015-54)

• Expands to be by program benefit year required quarterly and annually beginning 1st quarter 2016– Estimated amount to be filed or final amounts filed;

– Amounts impaired or amounts not accrued for other reasons (not withstanding collectability concerns);

– Amounts received from federal agency;

– Asset balance gross of nonadmission;

– Nonadmitted amounts;

– Net admitted assets.



INT 16-01: ACA Section 9010 Assessment 2017 Moratorium

• December 2015 budget imposed a 2017 moratorium on the fee applied to all health insurance providers.

• INT 16-01 was issues to promote consistent application of the accounting guidance in SSAP No. 106 for reporting years 2016 through 2018 with regards to the 2017 Section 9010 Moratorium. (Ref #2016-01)


INT 16-01 Guidance

• 2016– Accrual of liability for amount due Sept. 2016– No special surplus accrual of fee due Sept. 2017– Impacts year end disclosure

• 2017 – No amount due Sept. 2017 – Accrual in special surplus for fee due Sept. 2018

• 2018 – Back to accrual of liability for Sept. 2018 fee and in

special surplus for Sept. 2019 fee.



SSAP No. 1 Insurance Linked Securities

• Insurance-Linked Securities (ILS) Disclosure (Ref 2015-34)

• 2015 Actions:

– Adopted disclosure to identify if the reporting entity may receive possible proceeds from ILS.

– Disclosure was required in 2015 financial statements as a narrative disclosure only.

• 2016 Actions:

– Provided limited application guidance for year-end 2015 (non-authoritative)

– Spring NM - Exposed data-capture disclosure template, with clarifying language on how to complete the disclosure.


SSAP No. 11 - Disclosures

• Postemployment Benefits and Compensated Absences (Ref 2014-35)

• 2014 – Identified that SSAP No. 11 disclosures fitPension/OPEB Plans. Undertook project to reviewdisclosures

• 2015 - Most SSAP No. 11 disclosures that pertain to definedbenefit and defined contribution plans were deleted

– Remaining Disclosure: When it is not practicable toestimate and accrue liability

– Reference to complete disclosures in SSAP No. 92 ifentity is providing special or contractual terminationbenefits.



SSAP No. 23 – Foreign Currency • Foreign Currency Translation for Canadian Insurance

Operations (Ref 2015-24)

• Clarifies optional accounting treatment for translation ofCanadian Insurance Operations– Single Adjustment to Net Assets or

– Financial Statement Line by Line Translation• All other foreign currencies are required to use this approach

• Allowed optionality as it was not always cost effective totranslate each financial statement line for immaterialoperations

• Operations greater than 10% of reporting entity’s admittedassets, liabilities and net premium must translate eachindividual financial statement line item


SSAP No. 26 – Yield to Worst• Prepayment Penalties and Amortization on Callable

Bonds (Ref 2015-04)

• Clarifies the application of the Yield-to-Worstconcept and the amortization for callable bonds,including those with and without lock out periods(does not apply to make whole call provisions).

• Incorporated four illustrations detailing theamortization of callable bonds under the yield-to-worst concept.



SSAP No. 68 – Goodwill Limitation• Clarification on Goodwill Limitation (Ref 2015-14)

• Clarifies the Goodwill Calculation

– Positive goodwill from all sources, including life,accident and health, and deposit-type assumptionreinsurance, is limited in the aggregate to 10% ofthe acquiring1 entity’s capital and surplus

• New Footnote: The “acquiring” entity is intended toreflect the insurance reporting entity that reports theinvestment resulting in goodwill. The goodwilllimitation test shall be completed at the individualreporting company level.


SSAP No. 68 - Examples

• Insurance Company A ($15 million in capital andsurplus) “acquires” SCA for $3 million. This purchaseprice reflects $500K in GAAP book value and $2.5million in Goodwill. If Insurance Company A retainedthe investment they would be permitted to an admittedasset of $1.5 million.

• If Insurance Company A purchased the SCA for their100% owned Insurance Entity B, (300K in capital andsurplus), Insurance Entity B IS NOT ALLOWED to usethe “acquiring” entities capital and surplus of $15million to calculate admitted goodwill. Insurance EntityB must use their $300K in Capital and Surplus andonly admit $30K of the goodwill.



Misc. Revisions to the AP&P Manual

• Ref 2015-05: SSAP Titles– Shorten SSAP titles to remove redundant

information and make the publication more user-friendly

• Ref 2015-09: Technical Corrections– Language updates for consistency issues– References to INT effective dates – Paragraph placement changes to keep overall

format of SSAPs consistent.


Preamble

• Revisions to AP&P Manual (Ref 2015-28)

• Revised Preamble:

– Restructure: Clarify “historical” guidance

– Hierarchy: Include the Preamble in Level 4 of NAIC Hierarchy

– Materiality: Add narrative reference to INT 00-20: Application of SEC SAB No. 99, Materiality to the Preamble of the Accounting Practices and Procedures Manual



Appendices D and E• Appendix D – The listing of N/A GAAP guidance

previously detailed in IP No. 99 was moved to AppendixD. All subsequent N/A GAAP guidance will be noted inAppendix D (IP No. 99 will no longer be updated).(Ref #2015-20)

• Appendix E - Issue Papers were removed from theprinted version of the AP&P Manual and included on theSAPWG Secure Updates Web page. Issue Papers areconsidered non-authoritative and solely providehistorical information on revisions to statutoryaccounting. (Ref #2015-20)


Appendix F – Policy Statements

• Policy Statements (Ref 2015-18)

• Disbanded the Emerging Accounting Issues (E)Working Group (Effective 1/1/2016)

• Incorporated the interpretation process within theSAPWG (Effective 1/1/2016).

• Increased SAPWG membership from 13 to 15

• Directed staff to consider deferred revisions to thePolicy Statements in a separate agenda item

– Ref #2016-12 and #2016-13 were exposed forpublic comment at the 2016 Spring NationalMeeting



SSAP No. 24 Discontinued & Unusual Items

• Nonsubstantive Revisions / Complete Re-Write

– Reflects GAAP terms, but SAP application guidance essentially unchanged.

– ASU 2015-01: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

– ASU 2014-08: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

(Ref #2015-06 and #2015-07)

– Transition Guidance: Not expected to change measurement or reporting process, as such changes were effective immediately upon adoption (June 17, 2015).


SSAP No. 24 – Unusual / Infrequent

• Unusual and / or Infrequently Occurring Items

– Replaced the prior “extraordinary” terminology.

• Unusual: High degree of abnormality, clearly unrelated or only incidentally related to typical entity activity.

• Infrequent: Not reasonably expected to recur in the foreseeable future.

– Retained SAP guidance (modification from U.S. GAAP) to report these items consistently with other operations. Under U.S. GAAP these items are reported as a separate component of operations.

– Retained SAP disclosure of these items.



SSAP No. 24 – Discontinued Operations

• Improves definition of “discontinued operations,” enhances IFRS convergence, and clarifies disposals– Reflects strategic shift that has (or will have) a major

effect on the entity’s operations and financial results when classified as held for sale, sold, or otherwise disposed (e.g., abandoned).

– Lower of carrying value or fair value less costs to sell.

– Recognize realized loss for any initial or subsequent write-down to fair value less costs to sale. Gains are prohibited until the disposal transaction is complete.

– Rejects GAAP guidance for separate reporting and

– Incorporates limited disclosures from GAAP

– Corresponding revisions to SSAP No. 90


SSAP No. 40R – Real Estate • Recap – Revisions effective Jan. 1, 2015 allowed real

estate held in an LLC meeting specific conditions to be reported as real estate on Schedule A.

• Questions were received on the requirement to possess “all risks and rewards” of the real estate without constraints from the LLC, and whether a standard mortgage would prevent this guidance.

Revised SSAP No. 40R Guidance (Ref #2015-11): Standard mortgage or encumbrance by unrelated parties is not a sharing of “risks or rewards” and is permitted. However, participating mortgages or loans / encumbrances from related parties would result with reporting entity not solely and distinctly possessing all risks/rewards of real estate investment.



SSAP No. 40R – Adopted Conditions

1. No Other LLC TransactionsExcept for transactions associated with managing real estate

2. Owns Single-Real Estate Supported by AppraisalMultiple structures are contiguously located and managed

3. Solely Controls Real Estate Controls access, and can sell as promptly as directly owned

4. Solely Possess All Risks and RewardsNo constraints by LLC

5. Reporting Entity is ONLY Member of LLCDoes not allow any other members – even if other members of the LLC are affiliates. LLC comprised of affiliates is not allowed

6. No apportionment of income or expensesNot to entities and not between the general/separate account

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SSAP No. 97 – SCA Investments• Four Agenda Items Adopted in 2015

• Revisions intend to clarify and improve application:

– Ref #2015-08 – Improve consistency in guidance

Nonadmitted assets and valuation of SCAs

– Ref #2015-32 – Clarification of paragraphs 10-12

Application of “equity” method

– Ref #2015-25 – New SCA Disclosure for 2015

Inclusion of filing guidance

– Ref #2015-26 – Rejection of GAAP guidance



SSAP No. 97 – OverviewOverview of SSAP No. 97 Accounting:

8.a: Market Value – Must Qualify and Be Elected

Traded on NYSE, ASE, NASDAQ, or Tokyo Stock Exchange

8.b: Equity Method: – 8.b.i – Statutory Equity

U.S. Insurance SCA – Statutory Financial Statements

– 8.b.ii – Adjusted GAAP Equity – Limited SAP Adjustments

Noninsurance SCAs Meeting Revenue and Activity Tests

– 8.b.iii – GAAP Equity

Noninsurance SCAs NOT Meeting Revenue and Activity Tests

– 8.b.iv – GAAP Equity / Foreign Basis – Limited Adjustments

Foreign insurance SCAs


SSAP No. 97 – SCA InvestmentsNonadmitted Assets and Valuation of SCAs

• Revisions reference SSAP No. 25, paragraph 16d directly in SSAP No. 97. This inclusion clarifies that “audited GAAP equity” shall be adjusted per SSAP No. 25.

Addresses situations in which companies are uncertain whether they should adjust “audited GAAP equity” as that measurement is explicitly used in SSAP No. 97.

SSAP No. 25, paragraph 16d: Transactions which are designed to avoid statutory accounting practices shall be reported as if the reporting entity continued to own the assets or to be obligated for a liability directly instead of through a subsidiary.



SSAP No. 97 – ValuationNonadmitted Assets and Valuation of SCAs

• Revisions require disclosure of permitted or prescribed practices in the value of insurance reported SCAs (8.b.i).

Addresses questions on whether the “statutory financials” can be adjusted to remove permitted or prescribed practices in the value reported by the parent insurer.

Revisions Allow EITHER: • Audited statutory equity per statutory financials with disclosure

of any permitted or prescribed practices, or

• Audited statutory equity adjusted to remove permitted or prescribed practices that depart from the NAIC AP&P Manual.


SSAP No. 97 – ValuationNonadmitted Assets and Valuation of SCAs

• Clarifies “limited” statutory revisions if meeting the revenue and activity test, and adds statutory adjustments.

Addresses questions on whether the adjustments are intended to reflect “full statutory financial statements” for qualifying 8.b.ii entities as well as updates when adjustments are needed

Revisions Require Nonadmittance Adjustments in SCA: • SSAP No. 21 (e.g., collateral loans), SSAP No. 105 (WCFI),

and for surplus notes held by SCA issued by reporting entity.

• Also, depreciation adjustments for assets under SSAP No. 68



SSAP No. 97 – Equity MethodApplication of Equity Method

• Overlap of paragraphs based on type of “equity method” caused confusion on differences in the paragraphs. Also, guidance for dividends seemed contradictory.

Addresses questions mostly by reorganizing guidance

• Paragraph 10 – Applies to all equity filers and provides guidance for recording the investment at initial acquisition.

• Paragraph 11 – Equity guidance for subsequent reporting. – 11a: Specific guidance for 8.b.i – U.S. Insurance SCAs (SAP Equity)

– 11b: Specific guidance for non-8.b.i entities (GAAP Equity)

• Paragraph 12 – Guidance for market-value (8.a) entities


SSAP No. 97 – New DisclosureNew SCA Disclosure

• Disclosure details the reported value of the SCA as well as information received after filing the SCA with the NAIC.

Disclosure Initially Required Dec. 31, 2015

New Agenda item Exposed Spring 2016 NM:

• Data-captures disclosure• Incorporates revisions to include ownership percentage of SCA• Includes instructions to assist with completing disclosure and

identifying materials difference since the SCA was filed.

NAIC Filing: Submitted in June, with prior year audited F/S of SCAInsurer Reported Value: Based on current year investment info of SCA



SSAP No. 97 – Filing SCAsKey Information for Filing SCAs:

• Equity SCAs within scope of SSAP No. 97, except 8.b.i entities, shall be filed.

8.b.i = U.S. Insurance SCA already file statutory financials with NAIC

Equity = Common or Preferred Stock meeting “control” threshold

• Joint Ventures, Partnerships and LLCs are within scope of SSAP No. 48 and are not filed.

• No current exclusions for nonadmitted / immaterial SCAs

Completeness = NAIC is tasked with providing info on non-filed SCAs

• New Database “VISION” will greatly improve SCA Filings!!


SSAP No. 97 – Derecognition

ASU 2011-10 – Derecognition of in Substance Real Estate

ASU rejected in SSAP No. 97:

1) Pertains to consolidation of a subsidiary’s operations, which is not a concept supported by statutory accounting.

2) SSAP No. 97 already has guidance for impairment:

Impairment shall be considered to have occurred if it is probable that the reporting entity will be unable to recover the carrying amount of the investment or there is evidence indicating inability of the investee to sustain earnings, which would justify the carrying amount of the investment.



SSAP No. 25 – No Cost Transactions

• ASU 2013-06: Not-For-Profit Entities: Services Received from Personnel of Affiliate (Ref 2014-36)

Rejected ASU for Statutory Accounting

Extensive Discussion:

• Transactions between affiliates at no cost.

• NAIC staff will be working with interested parties to obtain information on whether services between affiliates at no cost are included in holding company or Form B/D filings

• Possibly new agenda item to consider additional guidance.


SSAP No. 54 – Charity Care

• ASU 2010-23: Measuring Charity Care for Disclosure (Ref 2015-01)

• Adopts definition of charity care – health care services that are provided by are never expected to result in cash flows; provided to a patient with inability to pay

• Adopts, with modification, charity care disclosures

-Management’s policy for providing charity care and level of charity care provided



SSAP No. 55 and SSAP No. 74

• Title Note 25 and SSAP No. 55 (Ref 2015-29)– Wording changes to address variation in terminology for

title reporting entities, while maintaining a note that’s still a uniform disclosure

• Protected Cell Reporting (Ref 2014-32)– SSAP No. 74 addresses protected cells issued by property

and casualty insurers

– Updates references from aggregate write-in lines to pre-printed lines for protected cells


Rejected GAAP Pronouncements

• The following GAAP pronouncements were rejected with specific SSAPs:– SSAP No. 15: ASU 2015-03 – Simplifying the Presentation

of Debt Issuance Cost

– SSAP No. 15: ASU 2015-15 – Debt Issuance CostAssociated with Line-of-Credit Arrangements

– SSAP No. 25: ASU 2013-26 - Not for Profit Entities –Services Received from Personnel of Affiliates

– SSAP No. 97: ASU 2011-10 – Derecognition of inSubstance Real Estate



Rejected GAAP Pronouncements• The follow GAAP pronouncements were rejected as not

applicable to statutory accounting in Appendix D:– FAS 159 – The Fair Value Option for Financial Assets and Financial

Liabilities– ASU 2014-06 – Technical Corrections and Improvements Related to

Glossary Terms– ASU 2015-06 – Effects on Historical Earnings per Unit of Master

Limited Partnership Dropdown Transactions– ASU 2015-11 – Inventory – Simplifying the Measurement of Inventory– ASU 2015-12 - Plan Accounting: Defined Benefit Pension Plans,

Defined Contribution Pension Plans, Health and Welfare Benefit Plans– Parts 1, 2 and 3

– ASU 2015-13 - Derivatives and Hedging - Application of the NormalPurchases and Normal Sales Scope Exception to Certain ElectricityContracts within Nodal Energy Markets

– EITF’s 98-10, 99-01, 99-03 and 00-07


Hot Topics• Variable Annuities

• Investment Classification ETFs

• Repurchase Disclosures

• Short Sales

• Quarterly Reporting of Investment Schedules

• Prepayment Penalties

• Leases

• PBR



Variable Annuities

2016 Charge to Statutory Accounting Principles WG:

Develop and adopt changes, with effective date of Jan. 1, 2017 or earlier, which allow hedge accounting treatment for certain limited derivatives contracts that otherwise do not meet hedge effectiveness requirements. In adopting such an allowance, consider if the requirement to meet hedge effectiveness can be replaced by some other information that demonstrates strong risk management is in place over identified hedges.

Recommendation:

Pursue revisions for derivative transactions hedging AG 43 guarantee reserves as a “special accounting treatment”.

Intent is to encourage risk-management transactions


Variable Annuities2016 Spring NM – Exposed Initial Agenda Item:

– Proposes guidance to be separate and distinct from existing “effectiveness” guidance in SSAP No. 86.

– Discusses possibilities for the “hedged item” and “hedging instrument” that could allow a form of macro-hedging (portfolio of dissimilar items).

– Incorporates concepts from determining qualifying hedges / hedge effectiveness from SSAP No. 86 as well as the “Clearly Defined Hedging Strategy” from AG 43.

– Identifies that special consideration is needed for the treatment of gains/losses upon termination of the hedge.



Investment Classification ETFs

Measurement Method for SVO-Approved “Bond” ETFs:

• Can be “amortized cost” under SSAP No. 26 by designation. – Inconsistent in practice – either “original cost” or fair value.

– Original cost is not an acceptable method (ICP 14)

– No “amortized cost” as no par, maturity date or interest rate.

• Considered calculation for “proxy” amortized cost.– Approach based on “effective interest method” employing an

“aggregate cash flow methodology” (BlackRock Proposal)

– Based on industry standards for calculating and publishing aggregated cash flows for fixed income ETFs.

– On a given measurement date, ETF represents known portfolio of bonds with defined cash flows.


Investment Classification ETFs

2016 Spring National Meeting Direction:

• NAIC Staff to draft new measurement guidance for SVO-approved ETFs and Bond Mutual Funds in SSAP No. 26.

• Provide Option for Reporting Entities: – Report at Fair Value (Allowing Net Asset Value – NAV)

– Allow “Amortized Cost” proxy under a Documented Approach

• Proposed Restrictions for Documented Amortized Cost: – NAIC designation support amortized cost (Not LOCOM)

– Irrevocable election by CUSIP until security is no longer held

– Documented approach must be reviewable by regulator



Repurchase DisclosuresRestricted Asset (E) Subgroup to review accounting and reporting for repurchase and reverse repurchase agreements.

Prior Discussion Topics:• Long-Term Repos – Not Admitted under SAP

• Accounting Changes – Delay / Focus on Disclosures

Current Discussion - Disclosures: • Info on repo activity during periods and at period end.

• Exposed templates and SSAP No. 103 changes

• Comments due April 29, 2016


Repurchase DisclosuresDisclosures Divided by “Secured Borrowing” & “Sale”

Secured Borrowing:Repurchase – Cash Taker/Selling Securities– Transferred asset still reported on insurer’s books– Recognize cash collateral / Liability to return

Reverse Repo – Cash Provider/Buying Securities– Received asset not shown on insurer’s books – Cash collateral derecognized / Receivable for return

Sale:

– Transferred / Received Assets Recognized

– Forward Repurchase / Resale Commitment Recognized



Secured Borrowing Disclosures• Number of Repo Trades – Bilateral or Tri-Party

• Repo Maturity

• Securities Sold / Collateral Received

• Securities Received / Collateral Provided

• Liability / Receivable to Return Collateral– Always Cash Collateral & Security Collateral as Applicable

• Counterparty / Jurisdiction (by Fair Value)

• Fair Value of Securities that Resulted in Default– Not intended to capture “failed trades”

Potential Expansion of Schedule DL for Repos


Short SalesIssue Paper 152 & Substantively Revised 103R

• Short Sale = Selling Security Not Owned

Not currently addressed under SAP

• Selling security short = Action of the Entity

A short sale is Not an Investment

• Proposal – Report as Contra-Asset at Fair Value

Shows “sale” as reduction of invested assets

• Disclosures – Unsettled & Settled in Period

Risk of Short Sale – No Limit on Obligation to Provide Security



Quarterly Investment SchedulesDiscussing Policy Change on Investment Schedules

• Quarterly schedules include acquisitions / dispositions

• To allow for more-current / macro-review, considering change for to have detailed investment schedules.

• Current exposure – Industry Provided Alternatives:

– Hire a consultant to aggregate investment data using acquisition and disposition information provided.

– Allow expanded time to complete electronic-only filing of all investment detail.

– Replace quarterly acquisitions and dispositions with schedule of owned holdings.


Quarterly Investment Schedules

Replace Acquisitions / Dispositions with Owned Holdings

• Proposal would only be Schedule D Investments.

• Annual reporting of acquisitions & dispositions still required.

• Schedule D verification still required quarterly.

• Schedule D – 1B: Activity by NAIC designation still required quarterly.

• Schedule D – Part 5: Acquired & disposed in same quarter still required quarterly.

Comments are Being Solicited from Broader Regulator Groups

Would Not Require any specific SSAP Change



Prepayment Penalties

• Prepayment Penalties and Presentation of Callable Bonds (Ref #2015-23)– August 2015 – Accounting and reporting treatment of

prepayment penalties was bifurcated to Ref #2015-23 (from Ref #2015-04)

– October 2015 – Working Group elected to account for prepayment penalties using the current SSAP No. 26 treatment of investment income

– November 2015 – Exposed revisions to various SSAPs and reporting tools to clarify the appropriate reporting of prepayment penalties within the investment schedules.


Prepayment Penalties

• Spring NM – Exposed Revisions to SSAP Nos. 26 and43R:– Clarify the amount of investment income and/or realized

gain (loss) to recognize for securities, sold, redeemed orotherwise disposed as a result of a callable feature.

– New disclosure to capture the number of CUSIP’s sold,disposed or otherwise redeemed and the aggregateamount of investment income generated as a result of aprepayment penalty and/or acceleration fee

– Effective Date: January 1, 2017



Leases• FASB issued ASU 2016-02 – Leases

• Recognizes all leases on the balance sheet (right-of-use asset and liability)

• Created ASC 842 (Superseded ASC 840)

• Effective Date: December 15, 2018

• SSAP No. 22—Leases currently prescribes that allleases shall be considered operating leases

• 2016 Spring NM - Request for comments on three proposed staff options for accounting of operating and financing leases under SAP (Ref #2016-02)


LeasesProposed Staff Options:• Maintain existing statutory accounting

guidance in SSAP No. 22 (potential new disclosures)

• Adopt ASU 2016-02, with modification, to recognize the lease asset and lease liability, but requiring nonadmittance of the lease asset (pursuant to SSAP No. 4)

• Adopt ASU 2016-02, with modification, to recognize lease assets and lease liabilities for a lessee’s operating and financing leases.



Principles Based Reserving

• Valuation Manual Operative Date: Jan. 1, 2017(tent.)

• Several prospective impacts to regulatory framework

• First phase of PBR impacts ULSG and term life

• Two SAPWG exposures: – Standard Valuation Law/ A-820

– SSAP No. 51—Life Contracts

• More are in development including:– Health changes and

– Change in valuation basis.


-- QUESTIONS --

2016 SAP UPDATESJulie Gann – [email protected] / Robin Marcotte – [email protected] Arpin – [email protected] / Fatima Sediqzad – [email protected]

Documents

2016 SAP Updates - naic.org · © 2016 National Association of Insurance Commissioners 3 © 2016 National Association of Insurance Commissioners Learning Objectives 1. Substantive