Why me? Do you report any Subsidiary, Controlled, and Affiliated (SCA) Investments on Schedule D, Part 6, Section 1, but have not been submitting separate Sub 1 and/or Sub 2 filings? If so, you may receive an email from your financial analyst stating that NAIC SCA team has identified some SCA investments reported but not filed for valuation review.
Why now? In 2016, the Statutory Accounting Principles (E) Working Group adopted revisions to SSAP No. 97—Subsidiary, Controlled and Affiliated Entities to incorporate information on the filing of SCAs with the NAIC. Prior to that, the filing instructions were included in the Purposes and Procedures Manual of the NAIC Investment Analysis Office. The Working Group adopted revisions to clarify the guidance, as well as incorporate exclusions to the filing guidance.
What are the rules? Generally, if the insurance reporting entity owns 10% or more of the SCA, then both filings are required. A Sub 1 form is required to be filed within 30 days of the acquisition or formation of the investment. The form should include information about the SCA such as the acquired value, the anticipated value of the SCA that will be reported, the valuation method applicable under the guidance of SSAP No. 97, and information on the context and economic and business motivations for the transaction.
A Sub 2 form is required to be filed annually for any existing SCA investment by June 30th of the next calendar year. A Sub 2 filing should include documentation that supports the value of the SCA, such as audited financial statements. Submitted information will then be reviewed by SCA analysts to assess if the admitted value is properly reported.
Filing deadline revision. In fall of 2017, the Statutory Accounting Principles Working Group (SAPWG) adopted the revisions to the Sub 1 and Sub 2 filing deadline which went into effect January 1, 2018. The revision extends the deadline for the Sub 1 filing from 30 days to 90 days and the Sub 2 filing from June 30 to August 31. It also added a provision for companies that regularly receive their audited financial reports after August 31; those companies will have one month from the date they received their reports to file their Sub 2.
Exclusions. There are exclusions applicable to these filings. SCAs that meet the following requirements are excluded from filing both forms:
- U.S. Insurance SCAs that fall under paragraph 8bi of SSAP No. 97, that applied equity method reporting adjusted as appropriate for any unamortized goodwill and/or modified to remove the impact of any permitted or prescribed accounting practices that depart from the NAIC Accounting Practices and Procedures Manual.
- Investments captured within the scope of SSAP No. 48 –
- Joint Ventures, Partnerships and Limited Liability Companies.
Limited exclusions may apply to nonadmitted, zero-value and immaterial SCAs. Nonadmitted and zero-value SCAs are only required to submit a one-time Sub 1 filing. Immaterial SCAs may be excluded from Sub 2 filing if permission is granted by the Department of Insurance in a state of domicile.