SAP & GAAP Update

Presented at S.S.A.P. Chat Live California Insurance Industry Update by Ani Zadorian and Maria Vigul, JLK Rosenberger

At the end of 2023, JLK Rosenberger sponsored two insurance training events, bringing together professionals across the insurance industry. These full-day events featured expert presentations covering topics impacting insurance companies, including changes in the reinsurance market, accounting standard updates, regulations, economic trends, and more.

Our team summarized critical takeaways from select sessions to provide valuable insights for those unable to attend the events in person. Whether in accounting, investments, tax, compliance, or another insurance specialty, we hope you find these helpful in staying up-to-date on the latest developments and trends in the insurance industry.

As another year approaches, we’ve been met with a wave of updates in general accounting accepted principles (GAAP) and statutory accounting principles (SAP). The majority became effective in 2023, while some are still on the horizon. Are we ready for it? Will non-public companies be able to brace themselves? Do we have the necessary resources to tackle them? These are the questions one might have, especially before the S.S.A.P. Chat Live California Insurance Update.

There are several Accounting Standards Update (ASU) effective in 2023 for GAAP. The most significant is ASU 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which introduced Current Expected Credit Loss (CECL). CECL requires companies to estimate the expected credit loss over the instrument’s life using the reasonable and supportable forecasts measurement, a transition from the legacy GAAP incurred loss model. CECL applies to most financial instruments recorded at amortized cost. This ASU requires additional disclosures in the financial statements for the affected financial instruments, including a discussion on management’s credit risk assessment. ASU 2016-13 also introduced the revised impairment model for available-for-sale debt securities, which is why it is prudent for companies to consult with their investment managers to determine credit and non-credit-related impairments of securities as credit-related impairments will be recorded through earnings using an allowance account and non-credit related impairments will be realized in other comprehensive income.

What do you need to know about 2023 SAP updates?

No revisions resulted in new Statements of Statutory Accounting Principles (SSAP) or new statements of accounting principles concepts during 2023. In addition, the NAIC rejected the ASUs effective in 2023, including CECL, which will save insurance companies reporting only on a statutory basis of accounting time in developing and preparing additional disclosures and estimates. There were several clarifications in the SSAPs, such as modification to the fair value measurement of restricted securities for statutory accounting (SSAP No. 100R), clarification on invested assets issued by affiliates or related parties (SSAP No. 25), loan-backed and structured securities to incorporate collateralized loan obligations (SSAP No. 43R), clarification that invested assets pledged as collateral for admitted collateral loans must qualify as admitted invested assets (SSAP No. 21R), disclosure revisions to capture the gross, admitted, and non-admitted amounts of interest income due and accrued (SSAP No. 34), clarification that investments that are in substance residual interest to be reported on Schedule BA (SSAP No. 30R and SSAP No. 32R). Even though these revisions or clarifications were minor, reviewing the respective SSAP is expedient.

The wave of ASU 2023 updates has subsided, but more will take effect in 2024 and 2025.