Accounting Standard Updates

12 Days of SSAP: SSAP No. 34 – Investment Income Due and Accrued

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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 helpful change provides disclosure updates for reporting due and accrued interest and payment-in-kind interest (PIK). PIK reporting has experienced variations in actual application, and this item provides some practical guidance for developing the amounts of PIK reporting.

Full Article

At the NAIC Summer National Meeting, the Working Group adopted additional revisions to SSAP No. 34 – Investment Income Due and Accrued. Revisions adopt two new disclosures related to interest income and paid-in-kind (PIK) interest included in current principal balances and data capture for statutory accounting beginning with year-end 2023 reporting.

The first requires disclosure of the gross, non-admitted, and admitted amounts of interest income due and accrued. The second requires disclosure of any deferred interest and cumulative amounts of paid-in-kind (PIK) interest included in the current principal balance. The disclosure of deferred and PIK interest is in the aggregate; however, this information is expected to be collected for each investment in the Annual Statement when blank changes related to the principles-based bond proposal become effective in 2025. Impacted insurers may need to develop new processes and controls to aggregate this information to support the disclosure.

Changes also introduce a practical expedient to the PIK interest aggregate disclosure. Revisions eliminate the potential for inconsistent application on how paydowns / disposals impact PIK interest included in the cumulative principal / par balance. The clarification focuses on the treatment of disposals (e.g., repayments or sales) and directs reporting entities to apply any disposals to PIK interest outstanding before reducing the original par value. The practical expedient also allows reporting entities to calculate the cumulative amount of PIK interest by subtracting the original principal or par value from the current principal or par value. The adopted clarification and practical expedient guidance are captured in the annual statement instructions.

Effective Date: For year-end 2023 disclosures