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This presentation is pre-qualified for NAIC Designation Renewal Credits (DRCs). If you currently hold an NAIC APIR, PIR, or SPIR designation and are pursuing continuing education credit to maintain it, you may be awarded credits for your participation. To receive credit, you must be in attendance for the duration of the presentation.
• ALL available CRP ratings are required to be obtained.
• After obtaining ALL available CRP ratings, the ratings will be ordered, according to their equivalents, and the rating falling second lowest will be selected, even if that rating is equivalent to that of the first lowest. (If there are only two CRP ratings, the lowest is used.)
• Preamble – Revisions to the AP&P Manual Preamble (Ref 2015-28)• Appendix F – Policy Statement Revisions (Ref 2015-18)• AP&P Manual – Miscellaneous Revisions
– Placement Revisions to the AP&P Manual (Ref 2015-20)– Revisions to various SSAPs to adopt technical edits (Ref 2015-09)– Revisions to SSAP titles (Ref 2015-05)
• INT 15-01– ACA Risk Corridors Collectibility• INT 16-01: ACA Section 9010 Assessment 2017 Moratorium (Ref 2016-01)
• Ceding entities using Captive reinsurers on term and ULSG reserves
• Identify the standard: either AG 48 or model reg.
• Whether required levels of primary and other security related to the reinsurance contract are met, and the amount of the shortfalls if any. (Ref #2014-31)
If shortfalls exist - disclose: • Assuming insurer • Contract effective dates • Reserves ceded• Required and held
• Revisions incorporate a disclosure to identify aggregate unsecured high-deductible recoverables from groups under the same management or control including professional employer organization’s (Ref #2015-35)
• List the individual obligors, each related group members, and the total unsecured aggregate recoverables on high deductible policies for the entire group.
• Expands to be by program benefit year required quarterly and annually beginning 1st quarter 2016– Estimated amount to be filed or final amounts filed;
– Amounts impaired or amounts not accrued for other reasons (not withstanding collectability concerns);
INT 16-01: ACA Section 9010 Assessment 2017 Moratorium
• December 2015 budget imposed a 2017 moratorium on the fee applied to all health insurance providers.
• INT 16-01 was issues to promote consistent application of the accounting guidance in SSAP No. 106 for reporting years 2016 through 2018 with regards to the 2017 Section 9010 Moratorium. (Ref #2016-01)
SSAP No. 23 – Foreign Currency • Foreign Currency Translation for Canadian Insurance
Operations (Ref 2015-24)
• Clarifies optional accounting treatment for translation ofCanadian Insurance Operations– Single Adjustment to Net Assets or
– Financial Statement Line by Line Translation• All other foreign currencies are required to use this approach
• Allowed optionality as it was not always cost effective totranslate each financial statement line for immaterialoperations
• Operations greater than 10% of reporting entity’s admittedassets, liabilities and net premium must translate eachindividual financial statement line item
SSAP No. 26 – Yield to Worst• Prepayment Penalties and Amortization on Callable
Bonds (Ref 2015-04)
• Clarifies the application of the Yield-to-Worstconcept and the amortization for callable bonds,including those with and without lock out periods(does not apply to make whole call provisions).
• Incorporated four illustrations detailing theamortization of callable bonds under the yield-to-worst concept.
– Positive goodwill from all sources, including life,accident and health, and deposit-type assumptionreinsurance, is limited in the aggregate to 10% ofthe acquiring1 entity’s capital and surplus
• New Footnote: The “acquiring” entity is intended toreflect the insurance reporting entity that reports theinvestment resulting in goodwill. The goodwilllimitation test shall be completed at the individualreporting company level.
• Insurance Company A ($15 million in capital andsurplus) “acquires” SCA for $3 million. This purchaseprice reflects $500K in GAAP book value and $2.5million in Goodwill. If Insurance Company A retainedthe investment they would be permitted to an admittedasset of $1.5 million.
• If Insurance Company A purchased the SCA for their100% owned Insurance Entity B, (300K in capital andsurplus), Insurance Entity B IS NOT ALLOWED to usethe “acquiring” entities capital and surplus of $15million to calculate admitted goodwill. Insurance EntityB must use their $300K in Capital and Surplus andonly admit $30K of the goodwill.
information and make the publication more user-friendly
• Ref 2015-09: Technical Corrections– Language updates for consistency issues– References to INT effective dates – Paragraph placement changes to keep overall
– Hierarchy: Include the Preamble in Level 4 of NAIC Hierarchy
– Materiality: Add narrative reference to INT 00-20: Application of SEC SAB No. 99, Materiality to the Preamble of the Accounting Practices and Procedures Manual
Appendices D and E• Appendix D – The listing of N/A GAAP guidance
previously detailed in IP No. 99 was moved to AppendixD. All subsequent N/A GAAP guidance will be noted inAppendix D (IP No. 99 will no longer be updated).(Ref #2015-20)
• Appendix E - Issue Papers were removed from theprinted version of the AP&P Manual and included on theSAPWG Secure Updates Web page. Issue Papers areconsidered non-authoritative and solely providehistorical information on revisions to statutoryaccounting. (Ref #2015-20)
– Reflects GAAP terms, but SAP application guidance essentially unchanged.
– ASU 2015-01: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
– ASU 2014-08: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
(Ref #2015-06 and #2015-07)
– Transition Guidance: Not expected to change measurement or reporting process, as such changes were effective immediately upon adoption (June 17, 2015).
• Unusual: High degree of abnormality, clearly unrelated or only incidentally related to typical entity activity.
• Infrequent: Not reasonably expected to recur in the foreseeable future.
– Retained SAP guidance (modification from U.S. GAAP) to report these items consistently with other operations. Under U.S. GAAP these items are reported as a separate component of operations.
• Improves definition of “discontinued operations,” enhances IFRS convergence, and clarifies disposals– Reflects strategic shift that has (or will have) a major
effect on the entity’s operations and financial results when classified as held for sale, sold, or otherwise disposed (e.g., abandoned).
– Lower of carrying value or fair value less costs to sell.
– Recognize realized loss for any initial or subsequent write-down to fair value less costs to sale. Gains are prohibited until the disposal transaction is complete.
– Rejects GAAP guidance for separate reporting and
SSAP No. 40R – Real Estate • Recap – Revisions effective Jan. 1, 2015 allowed real
estate held in an LLC meeting specific conditions to be reported as real estate on Schedule A.
• Questions were received on the requirement to possess “all risks and rewards” of the real estate without constraints from the LLC, and whether a standard mortgage would prevent this guidance.
Revised SSAP No. 40R Guidance (Ref #2015-11): Standard mortgage or encumbrance by unrelated parties is not a sharing of “risks or rewards” and is permitted. However, participating mortgages or loans / encumbrances from related parties would result with reporting entity not solely and distinctly possessing all risks/rewards of real estate investment.
1. No Other LLC TransactionsExcept for transactions associated with managing real estate
2. Owns Single-Real Estate Supported by AppraisalMultiple structures are contiguously located and managed
3. Solely Controls Real Estate Controls access, and can sell as promptly as directly owned
4. Solely Possess All Risks and RewardsNo constraints by LLC
5. Reporting Entity is ONLY Member of LLCDoes not allow any other members – even if other members of the LLC are affiliates. LLC comprised of affiliates is not allowed
6. No apportionment of income or expensesNot to entities and not between the general/separate account
SSAP No. 97 – SCA InvestmentsNonadmitted Assets and Valuation of SCAs
• Revisions reference SSAP No. 25, paragraph 16d directly in SSAP No. 97. This inclusion clarifies that “audited GAAP equity” shall be adjusted per SSAP No. 25.
Addresses situations in which companies are uncertain whether they should adjust “audited GAAP equity” as that measurement is explicitly used in SSAP No. 97.
SSAP No. 25, paragraph 16d: Transactions which are designed to avoid statutory accounting practices shall be reported as if the reporting entity continued to own the assets or to be obligated for a liability directly instead of through a subsidiary.
SSAP No. 97 – ValuationNonadmitted Assets and Valuation of SCAs
• Revisions require disclosure of permitted or prescribed practices in the value of insurance reported SCAs (8.b.i).
Addresses questions on whether the “statutory financials” can be adjusted to remove permitted or prescribed practices in the value reported by the parent insurer.
Revisions Allow EITHER: • Audited statutory equity per statutory financials with disclosure
of any permitted or prescribed practices, or
• Audited statutory equity adjusted to remove permitted or prescribed practices that depart from the NAIC AP&P Manual.
SSAP No. 97 – ValuationNonadmitted Assets and Valuation of SCAs
• Clarifies “limited” statutory revisions if meeting the revenue and activity test, and adds statutory adjustments.
Addresses questions on whether the adjustments are intended to reflect “full statutory financial statements” for qualifying 8.b.ii entities as well as updates when adjustments are needed
SSAP No. 97 – Equity MethodApplication of Equity Method
• Overlap of paragraphs based on type of “equity method” caused confusion on differences in the paragraphs. Also, guidance for dividends seemed contradictory.
Addresses questions mostly by reorganizing guidance
• Paragraph 10 – Applies to all equity filers and provides guidance for recording the investment at initial acquisition.
• Paragraph 11 – Equity guidance for subsequent reporting. – 11a: Specific guidance for 8.b.i – U.S. Insurance SCAs (SAP Equity)
– 11b: Specific guidance for non-8.b.i entities (GAAP Equity)
• Paragraph 12 – Guidance for market-value (8.a) entities
• Disclosure details the reported value of the SCA as well as information received after filing the SCA with the NAIC.
Disclosure Initially Required Dec. 31, 2015
New Agenda item Exposed Spring 2016 NM:
• Data-captures disclosure• Incorporates revisions to include ownership percentage of SCA• Includes instructions to assist with completing disclosure and
identifying materials difference since the SCA was filed.
NAIC Filing: Submitted in June, with prior year audited F/S of SCAInsurer Reported Value: Based on current year investment info of SCA
ASU 2011-10 – Derecognition of in Substance Real Estate
ASU rejected in SSAP No. 97:
1) Pertains to consolidation of a subsidiary’s operations, which is not a concept supported by statutory accounting.
2) SSAP No. 97 already has guidance for impairment:
Impairment shall be considered to have occurred if it is probable that the reporting entity will be unable to recover the carrying amount of the investment or there is evidence indicating inability of the investee to sustain earnings, which would justify the carrying amount of the investment.
• ASU 2013-06: Not-For-Profit Entities: Services Received from Personnel of Affiliate (Ref 2014-36)
Rejected ASU for Statutory Accounting
Extensive Discussion:
• Transactions between affiliates at no cost.
• NAIC staff will be working with interested parties to obtain information on whether services between affiliates at no cost are included in holding company or Form B/D filings
• Possibly new agenda item to consider additional guidance.
• ASU 2010-23: Measuring Charity Care for Disclosure (Ref 2015-01)
• Adopts definition of charity care – health care services that are provided by are never expected to result in cash flows; provided to a patient with inability to pay
• Adopts, with modification, charity care disclosures
-Management’s policy for providing charity care and level of charity care provided
Rejected GAAP Pronouncements• The follow GAAP pronouncements were rejected as not
applicable to statutory accounting in Appendix D:– FAS 159 – The Fair Value Option for Financial Assets and Financial
Liabilities– ASU 2014-06 – Technical Corrections and Improvements Related to
Glossary Terms– ASU 2015-06 – Effects on Historical Earnings per Unit of Master
Limited Partnership Dropdown Transactions– ASU 2015-11 – Inventory – Simplifying the Measurement of Inventory– ASU 2015-12 - Plan Accounting: Defined Benefit Pension Plans,
Defined Contribution Pension Plans, Health and Welfare Benefit Plans– Parts 1, 2 and 3
– ASU 2015-13 - Derivatives and Hedging - Application of the NormalPurchases and Normal Sales Scope Exception to Certain ElectricityContracts within Nodal Energy Markets
2016 Charge to Statutory Accounting Principles WG:
Develop and adopt changes, with effective date of Jan. 1, 2017 or earlier, which allow hedge accounting treatment for certain limited derivatives contracts that otherwise do not meet hedge effectiveness requirements. In adopting such an allowance, consider if the requirement to meet hedge effectiveness can be replaced by some other information that demonstrates strong risk management is in place over identified hedges.
Recommendation:
Pursue revisions for derivative transactions hedging AG 43 guarantee reserves as a “special accounting treatment”.
Intent is to encourage risk-management transactions
Variable Annuities2016 Spring NM – Exposed Initial Agenda Item:
– Proposes guidance to be separate and distinct from existing “effectiveness” guidance in SSAP No. 86.
– Discusses possibilities for the “hedged item” and “hedging instrument” that could allow a form of macro-hedging (portfolio of dissimilar items).
– Incorporates concepts from determining qualifying hedges / hedge effectiveness from SSAP No. 86 as well as the “Clearly Defined Hedging Strategy” from AG 43.
– Identifies that special consideration is needed for the treatment of gains/losses upon termination of the hedge.
• Prepayment Penalties and Presentation of Callable Bonds (Ref #2015-23)– August 2015 – Accounting and reporting treatment of
prepayment penalties was bifurcated to Ref #2015-23 (from Ref #2015-04)
– October 2015 – Working Group elected to account for prepayment penalties using the current SSAP No. 26 treatment of investment income
– November 2015 – Exposed revisions to various SSAPs and reporting tools to clarify the appropriate reporting of prepayment penalties within the investment schedules.
• Spring NM – Exposed Revisions to SSAP Nos. 26 and43R:– Clarify the amount of investment income and/or realized
gain (loss) to recognize for securities, sold, redeemed orotherwise disposed as a result of a callable feature.
– New disclosure to capture the number of CUSIP’s sold,disposed or otherwise redeemed and the aggregateamount of investment income generated as a result of aprepayment penalty and/or acceleration fee
guidance in SSAP No. 22 (potential new disclosures)
• Adopt ASU 2016-02, with modification, to recognize the lease asset and lease liability, but requiring nonadmittance of the lease asset (pursuant to SSAP No. 4)
• Adopt ASU 2016-02, with modification, to recognize lease assets and lease liabilities for a lessee’s operating and financing leases.