Accounting Standard Updates

12 Days of SSAP: Bond Project Update

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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 2023 and beyond.

This is a big one. It’s so big that Schedule D-1 will be expanded in the future. The changes also coordinated certain definitions and descriptions between SSAP 26R and 43R, so SSAP 26R becomes the primary bond definition source. Strengthened definitions may very well cause certain securities to no longer be considered bonds by the revised definition. How do you report those items? Read our Day 4 synopsis. You have one year to assess and adjust, so start early.

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This began as a smaller project and has evolved into a major review and refinement of the definition of a bond and what qualifies as a bond to be reported on Schedule D-1 of the annual statement. Its impact will be pervasive to all insurance entities investing in the bond markets. Interested parties (industry) were highly involved in the final outcome of this universal reassessment. It will also have equal repercussions for investment firms advising their insurance industry clientele. Advisory firms will be accountable for ensuring their investment offerings to their insurance clients clearly qualify within the eventual bond definition refinement. The following revisions of note have been adopted:

The newly adopted definition revises SSAP No. 26R—Bonds and SSAP No. 43R—Loan-Backed and Structured Securities for the principles-based bond definition, the accounting for bonds (issuer credit obligations and asset-backed securities), and further adjusts several supporting supplemental SSAPs. Those supplemental SSAPs now replicate the updated definition and/or SSAP references. The modifications to SSAP No. 26R now include the principle-based bond definition. SSAP No. 43R will be updated to include revised accounting and reporting direction for investments that meet the asset-backed securities definition.

Changes will be made to SSAP No. 21R – Other Admitted Assets. Adjustments being made will provide direction for the accounting for debt securities that do not meet the updated bond definition. SSAP 21 revisions will also address residual tranche measurement and accounting. For those debt instruments not meeting the bond specifications, the revisions make clear that if the principal source of repayment results from the underlying collateral, the investment will be allowed admittance only if that specific collateral qualifies as an admitted invested asset.

The revisions to SSAP Nos. 26R and 43R, as well as the revisions to SSAP No. 21R, will be effective January 1, 2025. SAPWG has reiterated that investments no longer meeting the bond definition after adopting such revisions can no longer be reported as bonds on Schedule D-1 thereafter. No grandfathering provisions have been made for existing investments that do not qualify under the updated SSAPs. SAPWG does understand that unusual circumstances could arise, creating undue hardship in attempting to comply with the updated definition. Each situation will be assessed on a case-by-case basis, and accommodations will be made as the situation warrants.

We are expecting more information on this as we approach the implementation date. We will keep you posted!

Effective Date: January 1, 2025