Shortly after INT 20-01: ASU 2020-04 – Reference Rate Reform was adopted in the spring, the NAIC Statutory Accounting Principles Working Group (SAPWG) introduced and adopted INT 20-09: Basis Swaps as a Result of the LIBOR Transition to provide statutory accounting guidance for “basis swaps.”
Basis swaps are compulsory derivatives issued by central clearing parties (CCPs) in response to the transition from London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR).
Derivatives classified as “other derivatives” are nonadmitted under SSAP No. 86 – Derivatives, whereas derivatives in the other categories are admitted provided they conform to the statement’s requirements.
The interpretation clarifies that the basis swaps classified and reported as “used for hedging” rather than “other derivative” may be admitted under SSAP No. 86. However, INT further states that in order to be admitted, the instrument has to meet the effective hedge requirements under SSAP No. 86.