Accounting Standard Updates
12 Days of SSAP – SSAP No. 32R, Preferred Stock
Article reading time: 1 minute 30 seconds
Hot Take:
As the holidays approach, JLK Rosenberger is 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 company in 2021 and beyond.
This article summarizes a substantive revision we considered significant related to SSAP No. 32, Preferred Stock. The SAPWG adoption decisions include refined definitions of preferred stock categories to more closely mirror GAAP guidance for classifying preferred stock as redeemable or perpetual.
Full Article
Now let’s take a look at substantive revisions to SSAPs that were adopted during the past year. A substantive revision we considered significant was related to SSAP No. 32, Preferred Stock, which was adopted through Issue Paper 164 – Preferred Stock.
The SAPWG adoption decisions include refined 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 the 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 clarifies 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 the 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.
Effective date:
January 1, 2021
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