Accounting Standard Updates, Captive Insurance

12 Days of SSAP: SSAP No. 43R – Loan-Backed and Structured Securities – Nonsubstantive Revisions

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Hot Take:

Hot Take

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 2022 and beyond.

The NAIC Statutory Accounting Principles Working Group (SAPWG) continues its clarification process for the unique nuances that have surfaced over the years for the complex loan-backed/asset-backed investment arena. This short refresher focuses on the nonsubstantive reminders that occurred during the year related to Freddie Mac/Fannie Mae structured security handling, residual tranche accounting, and credit tenant loan reporting.

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SAPWG made a few nonsubstantive revisions to SSAP No. 43R Loan-Backed and Structured Securities during the year.

At the March meeting, the working group adopted revisions to incorporate minor scope modifications to reflect recent changes to the Freddie Mac Structured Agency Credit Risk (STACR) and Fannie Mae Connecticut Avenue Securities (CAS) programs, which permit credit risk transfer securities from these programs to continue in the scope of SSAP No. 43R when issued through a Real Estate Mortgage Investment Conduit (REMIC) structure.

At the November meeting, the revisions were adopted, clarifying that residual tranches shall be reported on Schedule BA – Other Long-Term Investments and valued at the lower of amortized cost or fair value. For 2021, year-end reporting entities can continue reporting said interests on Schedule D-1 – Long-Term Bonds for 2021 but can also reclassify to Schedule BA. The working group also directed a memo be drafted to the Blanks Working Group to direct that self-assigned NAIC 5GI designations are not permitted for residual tranches on Schedule D-1.

On July 15, 2021, the Valuation of Securities Task Force adopted revisions to the SVO P&P Manual to clarify that credit tenant loans (CTL) are defined as mortgage loans in the scope of SSAP No. 37. The CTL-like securities are not subject to the SVO P&P Manual CTL structural assessments and should be captured in either SSAP No. 26R or 43R. Mortgage loans in the scope of SSAP No. 37 that qualify under an SVO structural assessment are in the scope of SSAP No. 43R as CTLs. At the December 2021 meeting, the working group adopted the proposed revisions, resulting in nullification of INT 20-10 (which provided a limited-time exception for the reporting of nonconforming CTLs and permitted continued Schedule D-1 reporting if the instruments were filed with SVO by February 15, 2021), and explicitly stating that SVO-identified CTLs are in the scope of SSAP No. 43R and deleting the examples of “other Loan-Backed and Structured Securities” in paragraph 27b of the statement.

Effective date:

Revisions related to STACR and CAS program investments are effective immediately. Revisions related to residual tranches are effective as of December 31, 2022, with early application permitted.

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