Accounting Standard Updates

12 Days of SSAP: SSAP No. 32R – Preferred Stock – Nonsubstantive Revisions

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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 2022 and beyond.

Today’s article focuses on nonsubstantive revisions adopted for SSAP No. 32R, Preferred Stock, effective January 1, 2021.

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Last year, substantive revisions were adopted for SSAP No. 32R, Preferred Stock, through the issuance of Issue Paper 164 – Preferred Stock. Regulators have once again returned to SSAP 32R and adopted two nonsubstantive revisions in 2021.

Here is a brief recap of revisions adopted in 2020 with the effective date of January 1, 2021:

  • Revisions included refining definitions of preferred stock categories to more closely mirror GAAP guidance for classifying preferred stock as redeemable or perpetual.
  • Also updated were accounting and valuation guidance for certain categories of preferred stock. As revised, all perpetual preferred stocks shall be reported at fair value, not to exceed any currently effective call price. Previously, perpetual preferred stocks rated NAIC 1- 3 held by life, fraternal and A&H companies were valued at amortized cost. The revision eliminated “cost” as valuation of redeemable preferred stock and clarified that amortization of discount or premium shall be reported through investment income. Mandatory convertible preferred stock shall be reported at fair value not to exceed a stated call price in periods prior to conversion.
  • The revised SSAP also provides clarified impairment guidance and new guidance for dividend recognition and redemption of preferred stock with the issuer. For redeemable preferred stock, the guidance mainly remained the same with clarification that an assessment is required when mandatory redemption rights or sinking fund requirements do not occur as scheduled. For perpetual preferred stock, the impairment guidance was revised to be consistent with stock investments under SSAP No. 30R, Unaffiliated Common Stock.

During the 2021 NAIC Spring Meeting, SAPWG adopted a nonsubstantive revision to SSAP No. 32R, Preferred Stock, clarifying that publicly traded preferred stock warrants should be treated as preferred stock, not derivatives, and reported at fair value.

This SSAP did not escape discussion at the 2021 NAIC Summer Meeting. The working group adopted one more nonsubstantive revision to clarify that the “effective call price” valuation limitation applies only when the call is currently exercisable by the issuer or the issuer has announced that the preferred stock will be redeemed or called.

The latest revisions to SSAP No. 32R were adopted at the December meeting, which resulted in removing from the statement references indicating that cost is an allowable valuation method and references to “characteristics of debt securities” in paragraph 11.a.i. to ensure consistency with prior approved edits to yield is now paragraph 11.b.i.

Effective date:


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