Accounting Standard Updates
12 Days of SSAP: Negative IMR Treatment: Short-term Solution or…?
Article reading time: 1 minute 30 seconds
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.
The NAIC Statutory Accounting Principles Working Group (SAPWG) conducted its summer National meeting on August 13, 2023, in Seattle and rendered its final verdict on the net negative (disallowed) Interest Maintenance Reserve proposal for the life insurance industry. Check out our Day 1 reminder on that topic, as it is a decision point for all life insurers carrying a 2023 net negative IMR balance.
Full Article
Negative IMR became a hot discussion topic earlier this year at the Spring National meeting. The concept was introduced by the American Council for Life Insurers, which felt that due to the rising interest rate environment, an inappropriate perception could prevail to public or rating agencies that insurers’ financial strength has been negatively impacted through lower surplus and RBC ratios. As a result, the companies may use less prudent investment/risk management techniques to avoid creating negative IMR in their balance sheets.
After discussions held throughout the year, INT 23-01 was exposed and adopted as a temporary solution to this issue. As adopted, the INT allows a temporary option to admit negative IMR to the extent of 10% of general account adjusted capital and surplus if an RBC ratio is greater than 300% authorized control level. If the entity reports under this INT, there are special reporting lines within the statutory quarterly and annual statements to reflect the amounts and impact of recognized negative IMR, including additional disclosures related to admitted amount.
As adopted, the INT appears to be a short-term solution in effect until December 31, 2025, and formally nullifies it on January 1, 2026. But not so fast! It further provides an interesting wiggle-room paragraph (¶15) stating the interpretation “may be adjusted via early nullification or extension of effective date timeframe.” This will likely depend on how the interest rate winds are blowing at the time and the status of portfolio unrealized losses. Stay tuned…
Effective Date: Immediately
For a deeper dive on this topic, click here.
