Statutory Accounting Update Session Papers... · 2014. 6. 3. · Statutory Accounting Update Session 101/501 . Agenda ... Completeness, Accuracy, or Consistency of XBRL Tagged data

IASA 86TH ANNUAL EDUCATIONAL CONFERENCE & BUSINESS SHOW

Statutory Accounting Update

Session 101/501

Agenda

Learning Objectives

Overview of Emerging Accounting Issues Working Group

(EAIWG) and Statutory Accounting Issues Working Group

(SAPWG)

Overview of the Standard Setting Process

Adopted Accounting Changes Effective in 2014 or Later

Exposed Issues

Other Issues for Accountants to Monitor

Learning Objectives

Description of Session and Learning Objectives:

• The purpose of this session is to provide an update of the actions

taken by the NAIC EAIWG and the SAPWG

• The session will accomplish the following objectives:

• Discuss how the EAIWG and the SAPWG assist in carrying out the

mission of the NAIC Accounting Practices and Procedures Task Force

• Discuss how a change moves through the NAIC

• Provide an overview of recent actions taken by the EAIWG and the

SAPWG at the recent Spring National Meeting

• Discuss other new standards that may be effective for 2014 reporting

Only SAPWG & EAIWG are Authorized to Modify the AP&P Manual

Financial Condition (E)

Committee

13 States

RI Chair – ME Vice Chair

Plenary

55 NAIC Members

Executive Committee

19 States

Other Committees &

Task Forces

Statutory Accounting

Principles WG (SAPWG)

13 States

OH Chair – IA Vice Chair

Emerging Accounting

Issues WG (EAIWG)

13 States

IA Chair – OH Vice Chair

Capital Adequacy Task

Force (CADTF) 22 States

WI Chair – NY Vice Chair

AP&P Task Force

41 States

CA Chair – IA Vice Chair

Blanks WG

21 States

UT Chair – CA Vice Chair

EAIWG Membership Jim Armstrong Iowa (Chair)

Dale Bruggeman Ohio (Vice Chair)

Richard Ford Alabama

Kim Hudson California

Kathy Belfi Connecticut

Eric Moser Illinois

Caroline Brock Louisiana

Judith Weaver Michigan

Matti Peltonen New York

Steve Johnson Pennsylvania

Doug Slape Texas

Doug Stolte Virginia

Tom Houston Wisconsin

SAPWG Membership

Dale Bruggeman Ohio (Chair)

Jim Armstrong Iowa (Vice Chair)

Kim Hudson California

Linda Sizemore Delaware

Eric Moser Illinois

Caroline Brock Louisiana

Judy Weaver Michigan

Patricia Gosselin New Hampshire

Matti Peltonen New York

Steve Johnson Pennsylvania

Doug Slape Texas

Doug Stolte Virginia

Tom Houston Wisconsin

Overview of SAPWG & EAIWG

Overview of the Standard Setting Process

Process

• Form A

• Issue paper, if applicable

• Exposure draft

• Adoption and effective date

Type of changes

• Substantive

• The regulators do not believe they dealt with before

• Effective date is included in the standard

• Non-substantive

• The regulators do not believe they dealt with before

• Effective upon adoption, unless a specific date is included in the standard


Adopted Accounting Changes Effective in 2014 and Later

Summary of Issue:

• Substantive change which adopts, with modification, GAAP guidance

as reflected in Accounting Standards Codification 505-50, Equity

Payments to Non-Employees (ASC 505)

• December 31, 2014 effective date

Discussion of Change:

• SSAP 104 (adopted 1/1/2013) provides guidance for equity-based

payments to employees, but does not address payments to non-

employees such as independent producers and company directors

• The revised SSAP 104R adopts the GAAP guidance including fair

value measurement of the awards with three modifications: (1)

nonadmit any prepaid assets, (2) disallows the minimum value method,

and (3) requires the midpoint of range to be used for estimation

(compared to the low point for GAAP)

SSAP No. 104R, Share Based Payments

(Ref # 2013-03)

Summary of Issue:

• Substantive change which creates a new SSAP for Working Capital

Finance Investments (WCFIs), allowing admitted asset treatment if

certain conditions are met

• January 1, 2014 effective date


• WCFIs represent interests in short-term trade receivables that insurers

can purchase through a finance agent

• Treated as admitted assets with accounting similar to short-term

investments, if approved by the SVO and rated NAIC 1 or 2

• Insurer must submit annual filing to the SVO including audited

financials of the finance agent

SSAP No. 105, Working Capital Finance

Investments (Ref # 2013-10)

Summary of Issue:

• Non-substantive change which adopts ASU 2011-09, Compensation-

Retirement Benefits- Multiemployer Plans with limited disclosures

• January 1, 2014 effective date (annual)


• The change requires additional disclosures for multiemployer benefit

plans

• More than 5% of the total plan contributions

• If a funding improvement or rehabilitation plan has been

implemented or pending

• Surcharge to the plan

• Minimum contributions required for future periods, if applicable

• Extent the employer could be responsible for the obligations of the

plan (qualitative description)

SSAP No. 92, Accounting for Post Retirement

Benefits Other Than Pensions/SSAP No. 102

Accounting for Pensions (Ref # 2013-37)

Summary of Issue:

• Non-substantive change which clarifies the amortization period for

bonds with make-whole provisions or that are continuously callable



• Make whole provisions should not considered when determining the

timeframe for amortizing premiums or discounts, unless information is

known that the issuer will invoke the make whole call provision

• For continuously callable bonds with a lockout period, the first call date

should be used when determining the timeframe for amortizing

premiums

• For continuously callable bonds without a lockout period, the entire

premium should be expensed at acquisition

SSAP No. 26, Bonds, Excluding Loan-Backed and

Structured Securities (Ref # 2013-21)

Summary of Issue:

• Non-substantive change which adopts revisions to numerous SSAPs

to improve the reporting and disclosure for FHLB transactions (SSAP

No. 1, Disclosure of Accounting Policies, Risks & Uncertainties and

Other Disclosures; SSAP No. 15, Debt and Holding Company

Obligations; SSAP No. 30, Investments in Common Stock (excluding

investments in common stock of subsidiary, controlled or affiliated

entities; SSAP No. 52, Deposit-Type Contracts

• January 1, 2014 effective date (quarterly and annual)


• SSAP 1 disclosures (general and separate accounts individually)

• Assts pledged to others or restricted compared to total assets and

total admitted assets (FHLB capital stock, collateral pledged to the

FHLB)

Changes to Accounting and Disclosures of FHLB

Transactions (Ref # 2013-27)

Discussion of Change (Continued):

• SSAP 30

• FHLB stock is considered restricted until actual redemption

• Par is considered fair value, unless considered other than

temporarily impaired

• Collateral pledged to the FHLB is considered restricted

• Collateral pledged to the FHLB is considered an admitted asset, if

certain conditions exist

• Enhanced disclosures (general and separate accounts individually)

• SSAP 15 and 52

• For FHLB contracts accounted for under the applicable SSAP,

disclosures are required under that SSAP, as well as SSAP 30

• Investment schedules/Annual Statement instructions changes

Changes to Accounting and Disclosures of FHLB

Transactions (Ref # 2013-27)

Summary of Issue:

• Non-substantive change which clarifies the footnote for mergers



• Mergers with a shell company (i.e., a reporting entity that has no

outstanding liabilities) are exempt from prior year restatements

• Mid-year mergers with a shell company should be reflected as of

January 1 of the current year

SSAP No. 3, Accounting Changes and Corrections

of Errors/SSAP No. 68, Business Combinations

and Goodwill (Ref # 2013-29)

Summary of Issue:

• Non-substantive change which adopts ASU 2013-10, Inclusion of the

Fed Funds Swap Rate as a Benchmark Interest Rate



• Incorporates the GAAP definition of a benchmark interest rate

• Clarifies what can be used for a benchmark interest rate, which

includes the Fed Funds Effective Swap Rate (i.e., Overnight Index

Swap Rate)

• Deletes prior guidance requiring the same benchmark for similar

hedges

SSAP No. 86, Accounting for Derivative

Instruments and Hedging (Ref # 2013-32)

Summary of Issue:

• Non-substantive change which incorporates changes to the decision

tree to clarify the intent of SSAP No. 97 in determination of the

valuation method for downstream affiliates



• Does not change current accounting

• Modifies Appendix B (Determining the Valuation Method flowchart) to

reference the accounting for downstream holding companies

SSAP No. 97, Investments in Subsidiary,

Controlled and Affiliated Entities (Ref # 2013-31)

Summary of Issue:

• Non-substantive change which rejects ASU 2012-04, Technical

Corrections and Improvements, and AICPA SOP 09-1, Performing

agreed Upon Procedures Engagements That Address the

Completeness, Accuracy, or Consistency of XBRL Tagged data as not

applicable to statutory accounting



• The GAAP guidance was rejected as not applicable to statutory

accounting. ASU 2012-04 updated previous GAAP guidance to

conform to FASB Codification, which had previously been addressed

for SAP. AICPA SOP 09-1 provides guidance for practitioners and is

not considered FASB Codified guidance.

• AICPA Statements of Position will no longer be included in the

Statutory Hierarchy

Issue Paper No. 99, Non-applicable GAAP

Pronouncements (Ref # 2013-34, 2013-35)

Summary of Issue:

• Non-substantive change which requires disclosures of the risk sharing

provisions of the federal Affordable Care Act (ACA)

• January 1, 2014 effective date (period end disclosures - quarterly)

• Expected December 31, 2014 effective date (roll-forward disclosures -

quarterly)


• The ACA imposes fees and premium stabilization provisions on health

insurers who offer commercial health insurance programs

• The change requires disclosure of the assets, liabilities and revenue

elements of each of the three programs (including material re-

estimations and impairments for the reporting period) within SSAP No.

35R, Guaranty Fund and Other Assessments

SSAP No. 35, Guaranty Funds and Other

Assessments - Revised (Ref # 2013-28)

Discussion of Change (Continued):

• The three programs include: Permanent Risk Adjustment Program

(Section 1343); (ii) Transitional Reinsurance Program (Section 1341);

(iii) Temporary Risk Corridors Program (Section 1342)

• The Transitional Reinsurance Program and Temporary Risk Corridors

Program are effective for the years 2014 through 2016 only

• The SAPWG requested comments regarding which statement to

include the disclosures, and also directed NAIC Staff to expose to

submit a proposal to the Blanks Working Group (2014-12 BWG) to

Note 24 (including data capture) for 2014

• The SAPWG exposed an annual roll-forward disclosure, which would

be effective December 31, 2014 and quarterly thereafter



Summary of Issue:

• Non-substantive change which requires companies subject to the

annual fee under the ACA to recognize a liability on January 1, 2013



• Include recognition of a liability and expense for the ACA fee payable

on January 1 of the fee year, with a recognition to special surplus as of

December 31 of the prior data year

• Disclosure of the fee is required December 31, 2013, and thereafter,

for the fee payable in following year

• The term “data year” means the calendar year immediately before the

fee year (i.e., 2013 is the data year for the 2014 fee year)

• The term “fee year” means the assessment must be paid to the U.S.

Treasury



ACA Fee:

• Include recognition of a liability and expense for the ACA fee payable

on January 1 of the fee year beginning January 1, 2014 and thereafter

• Include recognition of the fee in special surplus as calculated from the

prior data year beginning December 31, 2014 and thereafter

• Disclosure of the fee is required December 31, 2013, and thereafter,

for the fee payable in following year

ACA Risk Provisions:

• Period end disclosures – quarterly beginning January 1, 2014 and

thereafter

• Roll-forward disclosures – quarterly beginning December 31, 2014 and

thereafter (exposed)

ACA Summary


Exposed Issues

Summary of Issue:

• Substantive change which incorporates ACA section 9010 guidance

from SSAP No. 35R into a new SSAP

• The effective date is to be determined


• Does not change existing guidance

• Moves ACA fee guidance from SSAP 35 to a separate SSAP

• Issue paper will be drafted to capture all discussions held

New SSAP No. XXX, Affordable Care Act

Assessments (Ref # 2014-01)

Summary of Issue:

• Project to clarify the scope of multiple SSAPs (i.e., SSAP No. 26,

Bonds, Excluding Loan-backed and Structured Securities, SSAP No.

30, Investments in Common Stock (excluding investments in common

stock of subsidiary, controlled or affiliated entities), SSAP No. 32,

Investments in Preferred Stock (excluding investments in preferred

stock of subsidiary, controlled or affiliated entities), SSAP No. 43R,

Loan-backed and Structured Securities, and SSAP No. 48, Joint

Ventures, Partnerships and Limited Liability Companies

• Project may result in substantive changes to SSAPs


Investment Classification Review (Ref # 2013-36)


• The purpose of this project is to review investment related SSAPs and

to develop potential clarification of the definitions, scope, and the

related accounting method and reporting to address certain items

which may not currently be addressed related to: (i) definitions used by

statutory accounting versus capital markets, FASB and SEC usage; (ii)

allowing the “look-through” approach for certain investments held by

insurers; (iii) inconsistencies between reporting on Schedules D and

BA; and (iv) different treatment for some investments by type of insurer

• This proposal may result in substantive changes to existing SSAPs

due to changes in the exclusions, and may also result in a new SSAP

to include investments that are deemed to be outside the specific

investment types

Investment Classification Review (Ref # 2013-36)

Summary of Issue:

• Non-substantive change proposed to the capitalization policy

disclosure to promote consistency with other SSAPs



• The change requires the capitalization policy disclosure for EDP

equipment to be consistent with other SSAPs (i.e., Furniture, Fixtures

and Equipment, Prepaid Expenses, etc.) and disclose if there has been

a change in the written capitalization policies and thresholds from the

prior period

• Any required disclosure should include the reason(s) for the noted

change

SSAP No. 16R, Electronic Data Processing

Equipment and Accounting for Software

(Ref # 2014-04)

Summary of Issue:

• Non-substantive change proposed to adopt ASU 2014-05, Service

Concession Arrangements, to clarify that service concessions are not

within the scope of SSAP No. 22, and are not property in accordance

with SSAP No. 19



• The change requires that reporting entities refer to other applicable

guidance to account for the various aspects of a service concession

agreement

• A service concession agreement is an arrangement between a public

sector grantor and an operating entity which operates the grantor’s

infrastructure (i.e., airports, roads, bridges, tunnels, prisons, etc.) for a

specified period and maintains the infrastructure

SSAP No. 19, Furniture, Fixtures and Equipment

and SSAP No. 22, Leases (Ref # 2014-05)

Summary of Issue:

• Non-substantive change proposed to change the premium disclosure

categories with five activity codes and expand the definition of “type of

rate” to be consistent with previous changes to the title blank



• The change proposes to revise the disclosure to include premium

revenue for the five classifications for title insurance (i.e., Risk Rate,

Search, Exam, Closing, and Escrow)

• The revised disclosure is consistent with the laws of many states which

require insurers to report experience by rate type

SSAP No. 57, Title Insurance

(Ref # 2014-06)

Summary of Issue:

• Substantive change proposed to adopt the fair value guidance and

disclosures from ASU 2011-04, Fair Value Measurement (Topic 820)

• Exposed Spring 2012, discussion expected at August NAIC meeting



• ASU 2011-04 modified language describing how to determine fair

value and added new disclosures; changes part of project to converge

U.S. GAAP fair value rules w/IFRS

• Measurement changes not significant, but now required to disclose: (1)

transfers between Levels 1-2, (2), sensitivity of Level 3 measurements

to changes in unobservable inputs, and (3) fair value levels for all

financial instruments, not just those measured at fair value

• ASU adopted 1/1/2012, need to consider disclosures for audited

statutory financial statements until addressed by SAPWG

SSAP No. 100R, Fair Value Measurements

(Ref # 2012-14)

Summary of Issue:

• Non-substantive change to create new disclosures for Structured

Notes



• Structured Notes are issuer obligations with payments linked to an

underlying pool of securities or an index, including new generation of

mortgage backed securities issued by Fannie Mae and Freddie Mac

• NAIC modified SVO process in 2013 requiring these securities to be

modeled for RBC, previously they could be classified as filing exempt

• NAICs efforts geared toward Fannie and Freddie offerings, but SSAP

26 disclosures created to see “what else is out there”

• SSAP 43R modification changes phrase “structured note” to

“structured security” to avoid confusion resulting from new definition

SSAP No. 26, Bonds, Excluding Loan-backed and

Structured Securities and SSAP No. 43R, Loan-

backed and Structured Securities (Ref # 2014-02)

Summary of Issue:

• Non-substantive change proposed to clarify previously adopted GAAP

guidance relating to certain deferred compensation plans



• SSAP 92 was adopted on 1/1/2013, replacing SSAP 14, and provides

accounting for post-employment retirement benefits other than

pensions. SSAP 14 had adopted APB 12 (1967) without specific

guidance; however, APB 12 was not included in the new SSAP 92

• APB 12 addresses deferred compensation plans that are accounted for

individually, rather than as part of a plan

• Proposal adopts APB 12 in SSAP 14, Postemployment Benefits and

Compensated Absences, and makes other cleanup changes

SSAP No. 11, Postemployment Benefits and

Compensated Absences (Ref # 2014-07)

Summary of Issue:

• Non-substantive change proposed to link various issue papers to the

relevant SSAPs


• The change will identify the specific SSAP that contains authoritative

guidance associated with an Issue Paper

• Also identifies if current authoritative guidance is not directly related to

an Issue Paper

Various Issue Papers (Ref # 2014-08)

Summary of Issue:

• Substantive change proposed to revise the accounting for futures

contracts and related collateral, and provide guidance for collateral on

new centrally-cleared swap transactions

• NAIC staff working with industry on development of an Issue Paper


• Issue Paper should clarify that daily collateral postings do not

constitute settlement on open futures contracts and should not be

treated as realized gains or losses, addressing diversity in industry

practice

• Issue Paper should also address Dodd-Frank changes requiring swap

transactions to be centrally cleared through regulated clearinghouses;

these transactions are fully collateralized and collateral treatment is not

specified in SSAP 86

SSAP No. 86, Accounting for Derivatives and

Hedging Activities (Ref # 2013-13)

Summary of Issue:

• Substantive change proposed to recognize single member LLCs

holding real estate as real estate on Schedule A of the statutory

statements



• Allows a single member LLC that holds a single real estate asset to be

reflected as real estate

• Better RBC treatment

• No annual audit requirement

SSAP No. 40, Real Estate Investments and SSAP

No. 48, Joint Ventures, Partnerships and Limited

Liability Companies (Ref # 2013-17)

Summary of Issue:

• Non-substantive change proposed to reject ASU 2013-12, Definition of

a Public Business Entity as not applicable to statutory accounting



• ASU 2013-12 provides one consistent definition of a public business

entity that will be used by the FASB on a prospective basis

• Non-public entities sometimes benefit from reduced accounting and

disclosure requirements, as well as expanded adoption periods

• Since public and non-public entities are not a concept in statutory

accounting, ASU 2013-12 was rejected

• All future FASB standards will be reviewed on their individual merits

and a consistent approach will be applied for all entities if adopted for

statutory accounting

Issue Paper No. 99, Non-Applicable GAAP

Pronouncements (Ref # 2014-03)

Summary of Issue:

• Non-substantive change proposed to reject ASU 2014-03,Derivatives

and Hedging (Topic 815) as not applicable to statutory accounting



• ASU 2014-03 allows certain non-public entities to apply a simplified

accounting approach related to derivative

• ASU 2014-03 does not apply to not-for-profit entities, employee benefit

plans, and financial institutions, which includes insurance entities

• Rejects ASU 2014-03 as not applicable to statutory accounting

SSAP No. 86, Accounting for Derivative

Instruments and Hedging (Ref # 2014-09)


Other Issues for Accountants to Monitor

Summary of Issue:

• Changes to require an internal audit function for large insurers

• Effective date will be determined by the individual state legislatures


• Changes to the NAIC's Annual Financial Reporting Model Regulation

were adopted by the Financial Condition (E) Committee at the Spring

Meeting, and will become effective once adopted by the Executive

Plenary Committee

• These changes require large insurers (those above $500 million in

premium) to have an effective internal audit function

Annual Financial Reporting Model Regulation

Summary of Issue:

• The Corporate Governance (E) Working Group (CGWG) continued its

work on the development of an annual confidential filing requirement

detailing an insurer's corporate governance practices with the lead

state regulator of an insurance group



• Prior drafts included the use of a Guidance Manual to set forth the

specifics of the filing requirement

• Interested parties were concerned because the CGWG could change

the requirements without appropriate due diligence and comments

from industry

• The model regulation, abandoning the use of the Guidance Manual,

was exposed for comment (due April 21st)

Corporate Governance Annual Filing Act/Model

Regulation

Summary of Issue:

• The Investment Risk-based Capital Working Group’s charge is to

evaluate relevant historical data and apply defined statistical safety

levels over appropriate time horizons in developing recommendations

for revisions to the current asset risk structure and factors in each of

the risk-based capital formulas



• The change requires all C-1 RBC factors to be updated for all

investment asset classes

• Regulators, industry and the Academy of Actuaries are working

together on this project

RBC C-1 Factor Update

Summary of Issue:

• In 2013, the NAIC Capital Adequacy Task Force directed the Solvency

Modernization Subgroup to evaluate options for developing an

operational risk definition and an RBC charge

• Informational filing is expected to be in 2014, with a final effective date

likely to be in 2015


• Operational risk can be defined as: “The risk of financial loss resulting

from operational events such as inadequacy or failure of internal

systems, personnel, procedures or controls, as well as external events

• The subgroup has looked at how other jurisdictions incorporate

operational risk into their regulatory capital formulas

• The NAIC also has recently adopted the Own Risk and Solvency

Assessment Model Act which incorporates a consideration of

operational risk

Operational Risk RBC Proposal

Summary of Issue:

• The Capital Adequacy Task Force approved changes to the 2013

Property RBC Report, and will continue to evaluate the factors

• Informational filing was required in 2013, with a final effective date

likely to be in 2014


• The change requires a catastrophe risk factor for hurricane and

earthquake catastrophes

• Companies must report their catastrophe risk information in RBC report

pages PR025, PR030, PR031, PR032, PR034 and PR100+

• The Task Force continues to develop factors

Catastrophic Risk RBC Charge

Summary of Issue:

• The NAIC adopted changes to the Valuation Manual in 2012 that

create a new reserving framework for certain life insurance products

• The effective date will depend on movement of the proposal through

the state legislative process, and is not expected before 1/1/2016


• PBR replaces the formulaic reserving methodology applicable to term

and certain universal life insurance policies with a principles-based

approach that relies in part on company experience in setting reserves

• The reserve is determined by modeling a large number of scenarios

over a variety of economic conditions using justified company

experience, subject to a floor based on prescribed factors

• The changes apply to new products issued after the effective date

Principles Based Reserving

Summary of Issue:

• The NAIC is proposing new credit for reinsurance rules for certain

transactions with affiliated captive insurers, along with changes to

accreditation rules for captives

• The changes will likely be effective by 2015


• Life insurers cede term and universal life insurance rules to affiliated

captives to finance reserves associated with these products, the new

rules would regulate credit for reinsurance by requiring collateral equal

to a level that approximates a principles-based reserve

• Captives are currently subject to captive laws of individual states;

proposed accreditation rules would subject them to same rules as life

insurers (full statutory accounting, RBC investment guidelines)

NAIC Captives Review


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Documents

Statutory Accounting Update Session Papers... · 2014. 6. 3. · Statutory Accounting Update Session 101/501 . Agenda ... Completeness, Accuracy, or Consistency of XBRL Tagged data