Accounting Standard Updates

2017 NAIC Updates

Financial reporting for insurance companies can often be complex and confusing. In 2017, the NAIC continued making changes to statutory accounting principles. Changes during the year covered topics from temporary relief for those impacted by Hurricane’s Harvey, Irma and Maria, revisions to existing SSAP’s, accepting or and rejecting new guidance that has been codified under generally accepted accounting principles (US GAAP) and much more.  These changes can make it difficult for those unfamiliar with SSAP to tackle questions and reporting challenges. To help clients, prospects and others understand more about SSAP, and its key concepts, JLK Rosenberger has provided a summary of key SSAP insights and revisions from 2017 below.

Key SSAP Insights

  • Market Mutual Fund Revisions – SSAP No. 2 and SSAP No. 26 were revised to report all Money Market Mutual Funds (MMMFs) as cash equivalents and reported on Schedule E – Part 2. Investments in MMMFs shall be valued at fair value or net asset value (NAV) as a practical expedient.  They will have no charge for RBC. Prior guidance required companies to record MMMFs either as short-term investments reported on Schedule DA or evaluated under the measurement method of SSAP No. 26. If the MMMF was on the SVO exempt list, it would have no charge to RBC.  All other MMMFs were to be reported at fair value with a .03% or .04% RBC charge.
  • Equity Method Revisions – SSAP No. 30, 48 & 97 were revised to allow for changing to the equity method to be applied prospectively, as of the date the investment qualifies for equity method accounting. The revisions eliminate the requirement to retroactively adjust the prior periods presented when a change in ownership or degree of influence qualifies for equity method accounting.
  • Changes to Bond ETF – SSAP No. 26R, Bonds, was revised to incorporate bond exchange traded funds. Effective December 31, 2017, each insurance company must make a one-time election to choose to record bond ETFs at fair value or use systematic value. If fair value is elected, the investments will be recorded at market value immediately. If systematic value is elected, insurers will use their existing method for 2017 and use the systematic calculation beginning in 2018. Bond ETFs will be reported on Schedule D – Part 1 using a code to indicate the elected valuation method.
  • Guaranty Fund Assessments – Issue Paper No. 143R—Guaranty Fund Assessments: Revisions document substantive changes adopted to SSAP No. 35R—Guaranty Fund and Other Assessments related to assessments for insolvencies of entities that wrote long-term care insurance. The revisions allow expected renewals for short-term contracts to be considered in the recognition of assets from accrued liability assessments and require discounting for assessments and related assets.
  • Cash Flows – SSAP No. 69 – Statement of Cash Flows was revised to adopt ASU 2016-18 to reduce the difference between statutory and US GAAP on cash flow classifications. In the revision, restricted cash and cash equivalents are no longer reported as cash flows from operating, investing or financing buckets. Instead, they are included in the beginning and ending balances of the cash flow statements. The revision also specified that when needed, entities should make retrospective adjustments to compare the balances in the face of financials.
  • U.S. Treasury Inflation-Indexed SecuritiesINT 01-25—Accounting for U.S. Treasury Inflation-Indexed Securities (INT 01-25):  This update clarifies that the guidance in INT 01-25 only applies to Treasury Inflation-indexed securities that are backed by the full faith and credit of the US Government. Inflation-indexed securities of foreign governments shall not follow the guidance within INT 01-25.
  • 90 Day Rule Extension – Extension of Ninety-Day Rule for the Impact of Hurricane Harvey, Hurricane Irma and Hurricane Maria.INT-17-01 grants a 60-day extension to the 90-day rule for those directly impacted by Hurricanes Harvey, Irma and Maria, not to extend beyond February 15, 2018.
  • Unpaid Claims, Losses and Loss Adjustment ExpensesSSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses (SSAP No. 55) and SSAP No. 65—Property and Casualty Contracts (SSAP No. 65) : ASU 2015-09: Insurance — Disclosures about Short-Duration Contracts was issued in May 2015 and makes improvements to existing disclosures under U.S. GAAP for insurance entities that issue short-duration contracts. ASU 2015-09 was rejected for statutory reporting; however, revisions were made to conform statutory disclosures not originally in SSAP No. 55 and SSAP No. 65.
  • Mortgage Loans SSAP No. 37—Mortgage Loans, Revisions clarify the definition of a mortgage loan and identifies investments that fall under the scope of the SSAP.
  • Life and Health Reinsurance AgreementsAppendix A-791, Life and health Reinsurance Agreements, was revised to contain provisions which provide that a reinsurance agreement constitutes the entire agreement between the parties with respect to the business being reinsured and that there are no understandings between the parties other than as expressed in the agreement. In addition, any changes to the agreement must be in the form of an amendment and signed by both parties to be effective.  SSAP No. 62R, Property and Casualty Reinsurance contains similar language. 
  • Bonds – SSAP No. 26R, Bonds (SSAP 26R), was revised to clarify inconsistencies between the annual statement instructions and SSAP 26R. The revisions require losses from the other-than-temporary impairment of investments to be recorded to asset valuation reserve (AVR) and interest maintenance reserve (IMR) in accordance with the annual statement instructions.
  • High Deductible Policies – SSAP No. 65, Property and Casualty Contracts (SSAP 65), was revised to require additional and expanded disclosures for high-deductible contracts. The additional disclosures are to be made by line of business and include disclosures of gross reserves, amounts overdue, collateral and deductible amounts for the highest 10 high deductible policies gross of collateral.