Accounting Standard Updates

12 Days of SSAP: SSAP No. 86 – Derivatives – Nonsubstantive Revisions

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Hot Take

JLK Rosenberger continues 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.

Today we revisit the changes to LIBOR: The surrender of the London Interbank Offered Rate (LIBOR) as a key standard for global contractual banking benchmarking has led the financial services industry, including the insurance arena, to advance a replacement rate methodology that will not be disruptive to existing contractual covenants or financial statement presentations. SAPWG addressed this issue during 2021 to provide direction in leveling the impact of institutional changes necessitated by the transition.

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Interpretative revisions to SSAP No. 86 Derivatives were adopted during the May 2021 virtual call through expanding the scope of INT 20-01 ASU-2020-04 Reference Rate Reform. Revisions provide an optional temporary expedient and exception guidance with a set expiration date of December 31, 2022.

Modifications clarify that derivative instruments affected by changes to the interest rates used for discounting, margining, or contract price alignment as a result of reference rate reform are in the scope of INT 20-01. This exception will allow the continuation of the existing hedge relationship and will not require hedge redesignation. Revisions further clarified that INT 20-01 captures all hedging transaction types within the scope of the interpretation, regardless of if the transaction occurred bilaterally or through a central clearing party.

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