12 Days of SSAP: SSAP No. 41 – Surplus Notes
JLK Rosenberger is carrying on our holiday tradition of taking a new perspective on a holiday classic – the Twelve Days of Christmas. Rather than filling your head with turtle doves and gold rings, we are focusing on the latest changes to SSAP and how they will impact your insurance entity in 2026 and beyond.
Our Day 3 addition to the 12 Days of SSAP addresses a long-standing component unique to Statutory financial reporting – Surplus Notes, known by many of the old guard as Surplus Debentures. The NAIC Statutory Accounting Working Group (SAPWG) has introduced updated definitions to the surplus note, along with its exclusive cousin, capital notes. SAPWG has further simplified certain previous disclosure criteria related to the reporting of surplus notes.
These updates stem from the Bond Definition project, which recently concluded with the issuance of INT 24-01, Principles-Based Bond Definition Implementation Q&A. As part of the project, targeted revisions were made to clarify the treatment of Capital Notes, including updates to SSAP No. 41, Surplus Notes and related changes to the Annual Statement Instructions for Schedule BA reporting of certain insurer-issued instruments.
The revisions to SSAP No. 41 primarily remove the requirement to disclose holders of 10% or more of SEC-registered surplus notes. Regulators acknowledged that this disclosure would create a significant administrative burden and could be difficult to compile. Disclosure requirements related to surplus notes issued to affiliates were retained. Additional minor changes clarify the admittance criteria for note holders.
Changes to Annual Statement Instructions – Schedule BA provide the following revised definitions of surplus and capital notes:
Surplus Debentures: the portion of any subordinated indebtedness, surplus debenture, surplus note, debenture note, premium income note, or other contingent evidence of indebtedness, that qualifies as a surplus note pursuant to SSAP No. 41, that is reported in the surplus of the issuer.
Capital Notes: debt securities, that do not qualify as issued surplus notes pursuant to SSAP No. 41, that are treated as regulatory capital by the issuer’s primary regulatory authority and that do not qualify under the principles-based bond definition solely because interest can be cancelled in the event of financial stress in a non-resolution scenario without triggering an event of default.
Effective Date
February 26, 2025
Deep Dive
Learn more about what’s brewing at SAPWG and our hot takes on items being discussed.
