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  • March 29, 2021

SAPWG: NAIC Spring 2021 National Meeting

The Statutory Accounting Principles Working Group met March 15, 2021, to discuss items pertinent to statutory accounting. The following items are updates specific to investment accounting and reporting.

Adopted nonsubstantive items effective immediately


This item expands an existing disclosure regarding called bonds to include bonds terminated early through a tender offer. The SAPWG previously clarified in Ref #2020-02 that the accounting and reporting of bond investment income and capital gains/losses due to early liquidation either through a call or a tender offer shall be similarly applied.

Interested parties had no comments. NAIC staff recommended the working group adopt this item.


This item expands the scope of SSAP No. 32R—Preferred Stock to include publicly traded preferred stock warrants, requires publicly traded preferred stock warrants to be reported at fair value, and revises SSAP No. 86—Derivatives to identify this treatment.

Interested parties had no comments. NAIC staff recommended the working group adopt this item.


This item proposes to include recent changes to the Freddie Mac Structured Agency Credit Risk (STACR) and Fannie Mae Connecticut Avenue Securities (CAS) programs (i.e., STACR and CAS REMIC) into the scope of SSAP No. 43R and align SSAP No. 43R guidance regarding the financial modeling of mortgage reference securities to the requirements as directed in the P&P Manual. NAIC staff said it anticipates that future STACR and CAS issuances will be solely conducted through a Real Estate Mortgage Investment Conduit (REMIC) trust. The trust will pay interest and principal to the investors on a monthly basis and all other material characteristics remain unchanged (e.g., STACR notes are not guaranteed by Freddie Mac and CAS notes are not guaranteed by Fannie Mae). Both entities maintain the senior risk tranche which is unfunded and not issued for public investors. The main difference in the use of a REMIC trust is that it insulates investors from a possible Freddie Mac or Fannie Mae insolvency. NAIC staff believes a REMIC trust remains functionally equivalent and retains the same material risk structure as the original STACR and CAS programs.

Interested parties had no comments. NAIC staff recommended the working group adopt this item.


This item rejects for statutory accounting ASU 2020-06, which addresses the five accounting models for convertible debt instruments. Four of the five models require convertible debt instruments be separated into a debt component and an equity or a derivative component. This is not a practice recognized by SAP. It proposes to include the rejections of this accounting standard update in SSAP No. 5R—Liabilities, Contingencies and Impairments of AssetsSSAP No. 72—Surplus and Quasi-Reorganizations, and SSAP No. 86—Derivatives.


This item proposes similar accounting and reporting treatment for perpetual bonds as perpetual preferred stock. As such, the guidance proposed by this agenda item is similar to Ref #2019-04: SSAP No. 32 – Investment Classification Project. This item would affect SSAP No. 26R—Bonds. Perpetual bonds that possess a future call will be accounted for at amortized cost, and those that do not have a future call date will be accounted for with fair value regardless of NAIC designation.

Interested parties previously requested revisions clarifying that “perpetual bonds are within scope as a ‘bond,’ therefore shall apply the yield-to-worst concept (i.e., applicable premium or discount shall be amortized or accreted for perpetual bonds with an effective call option). Additionally, for perpetual bonds that do not possess or no longer possess a call feature, fair value reporting is required.” Additional revisions supplied with the most recent exposure recommended fine-tuning a new footnote to clarify that the yield-to-worst method would be used to amortize any applicable premium.

NAIC staff recommended the working group adopt the revisions along with interested parties’ suggested edit to the footnote.


This item revises Appendix F in the NAIC Policy Statement on Maintenance of Statutory Accounting Principles regarding the issuance and adoption of accounting interpretations (INT).

“The revisions clarified actions available to the Working Group (including but not limited to postponing the effective date until the item has been discussed by the Accounting Practice and Procedures (E) Task Force and the Financial Condition (E) Committee) as well as the voting requirements for when an INT can be overturned, amended, or deferred by the Task Force or E Committee.”

Interested parties suggested some wording edits to “clarify the policy for issuing interpretations which amend, supersede, or conflict with existing SSAPs (please see attached).”

NAIC staff recommended the SAPWG adopt the item with the proposed revisions that prevent use of INTs that provide temporary exceptions from SAP that may not be considered emergencies.


This item clarifies prescribed practices and how they are defined and applied in the NAIC Accounting Practices & Procedures Manual (AP&P Manual). Insurance companies are regulated by the domiciliary state in which they are licensed. However, there is conflict in that a non-domiciliary state in which the company is licensed may require supplemental information to be filed. At times, this may require a different accounting practice than which is required by the AP&P Manual. In that case, such a provision would be a prescribed practice. NAIC staff stated, “If the company files supplemental financial information that reflect this practice(s), even if the supplemental financial information is filed only in the non-domiciliary state, then the prescribed practice disclosure of Note 1 shall apply.”

Interested parties stated that the discussion of prescribed and permitted practices in the proposal could cause confusion and suggested edits referring to supplemental financial information. “We believe the proposal should be amended to clarify that if a non-domiciliary state in which the company is licensed requires or allows a practice by state statute/bulletin (or other state-wide provision) in such supplemental financial information that is different from NAIC SAP, that practice(s) is also considered a prescribed practice. We recommend changes to the proposed wording to clarify these points.”

NAIC staff recommended the working group adopt the item with the edits proposed by interested parties.


This item clarifies any related party identified under US GAAP or SEC reporting requirements would also be considered a related party under statutory accounting principles. Non-controlling ownership over 10% results in a related party classification despite disclaimer of control or affiliation. It emphasizes disclaimer of control or affiliation impact holding company group allocation and reporting as an SCA under SSAP No. 97, but it doesn’t eliminate the related party classification and the required disclosure of material transactions. Also, it proposes to reject seven FASB Accounting Standards Updates as not applicable for SSAP No. 25.

Interested parties and NAIC staff had a conference call on December 10, 2020, to discuss the exposed draft. During the conference call, they discussed concerns that the draft “unintentionally impacted passive investments held by insurers in addition to investment in insurers.”

The draft was amended to reflect interested parties’ concerns. NAIC staff recommended the SAPWG adopt the item.

Exposed with comment deadline April 30, 2021


In March 2020 the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting in order “to ensure the financial reporting of hedging relationships would reflect a continuation of the original contract and hedging relationship during the period of the market-wide transition to alternative reference rates.”

Since that time there have been various transitions in the derivatives market due to reference rate reforms. However, they do not modify an interest rate that is expected to be discontinued.

In January 2021, FASB issued ASU 2021-01, Reference Rate Reform in order to “clarify that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (regardless of whether they reference LIBOR or another rate that is expected to be discontinued as a result of reference rate reform) are in afforded the contract modification relief provided in ASU 2020-04.” According to the meeting notes, ASU 2021-01 expands the scope of ASU 2020-04 “by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires dedesignation.”

Staff recommends that the SAPWG move this item to the active listing as nonsubstantive and expose temporary (optional) expedient and exception interpretative guidance with an expiration date of December 31, 2022. These optional expedients would expand the guidance in INT 20-01: ASU 2020-04 – Reference Rate Reform. Under that guidance, derivative instruments impacted by interest rate changes used for discounting, margining, or contract price alignment would be within the scope of INT 20-01. This exception would allow for continuation of the existing hedge relationship and thus not requiring hedge dedesignation.


The FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs in October 2020 in order to clarify the amortization of premium associated with callable debt securities.

“ASU 2020-08 requires that to the extent the amortized cost basis of a callable debt security exceeds the amount repayable by the issuer, any associated premium (above the call price) is to be amortized to the next effective call price/date. For example, if a reporting entity held a bond at $104 in which could be called at $102 in a year, the $2 excess premium would be amortized over that particular year. Once amortized to $102, the reporting entity would then reassess for any excess premium to the next effective call price/date. If there is no remaining premium or further call dates, the effective yield is reset using the payment terms of the debt security.”

NAIC staff recommends that the item be moved to the active listing as nonsubstantive and expose revisions to SSAP No. 26R—Bonds to reject ASU 2020-08 for statutory accounting as it precludes statutory accounting’s yield-to-worst concept.


This item proposes additional disclosures and to data-capture certain elements of SSAP No. 103R —Transfers and Servicing of Financial Assets and Extinguishments of Liabilities in response to SAPWG’s deliberation of item 2019-21: SSAP No. 43R – Equity Instruments. That project is intended to determine what investments fall within SSAP No. 43R—Loan-Backed and Structured Securities, and was expanded in October 2020 to include a review of the investments eligible for reporting on Schedule D-1: Long Term Bonds.

In the course of that project, regulators expressed a desire to identify when a reporting entity has “entered into a securitization, asset-backed financing or similar transfer transaction where a significant economic interest in the transferred assets is retained by the reporting entity, its related parties or another member within the holding company group.”

NAIC staff recommends that the SAPWG move this item to the active listing as nonsubstantive in order to: 1) expose new disclosure elements, and 2) propose data-capture templates for existing disclosures in SSAP No. 103R—Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. A concurrent blanks proposal is also expected (2021-05BWG).


In November 2020, the SAPWG adopted item 2020-18 – SSAP No. 97 Update. While that item was being discussed, industry asked for specific consideration of “whether 8.b.iv entities should be subject to the provisions of SSAP No. 97, specifically that paragraph 9 adjustments may result in a negative equity valuation.” Industry’s primary feedback was that foreign insurance operations are subject to foreign jurisdiction and should stand independent of a domestic insurer.

The SAPWG drafted this item in order to determine if further edits to SSAP No. 97 are required. In response, “NAIC staff reviewed all SCA filings for the last 3 years, noting that less than 7% of all SCA filings were 8.b.iv entities. It was further noted that there was not a single instance of an 8.b.iv in a negative equity situation.”

Staff recommends the item be moved to the active listing as nonsubstantive and expose the intent to move this item to the disposal listing without statutory edits. However, an interested party said NAIC staff might not be able to find the foreign investments that are reported on Schedule BA by simply reviewing Sub 2 filings. The interested party understood SSAP No. 97 Para 9 adjustment is needed for domestic investments but it is not appropriate to record negative equity for foreign investments that are solvent. The interested party is looking forward to working with NAIC staff and providing them with some examples.

The chair agreed to re-expose this item.


NAIC staff has received several inquiries regarding STAT accounting treatment for cryptocurrencies like Bitcoin, including whether Bitcoin is captured as cash under SSAP No. 2R—Cash, Cash Equivalents, Drafts, and Short-Term Investments. In response, NAIC staff notes that cryptocurrencies do not meet the definition of cash under SSAP No. 2R because they are currently not accepted by major banks and do not operate like a traditional currency. They are nonadmitted pursuant to SSAP No. 4 Para 3.

NAIC staff recommended moving this item to the active listing and exposing the interpretive guidance in INT 21-01T: Statutory Accounting Treatment for Cryptocurrencies. The SAPWG would like input from interested parties and insurance trade groups on the following topics:

  1. Extent to which companies currently hold cryptocurrencies
  2. How the acquisition in cryptocurrency is held (directly by the insurer or indirectly through an SCA)
  3. Which cryptocurrencies they are acquiring in (Bitcoin, Ethereum, Litecoin, etc.)
  4. General level of interest for future acquisition by both companies that currently do and do not own cryptocurrencies


This item proposes two concepts to address reporting mismatches for derivatives that are used for hedging Fixed Indexed Products:

  1. Establish guidance that permits effective hedge treatment that is in line with SSAP No. 86. The derivative would be reported at amortized cost. The fair value changes would be recognized at settlement to offset the change in FIA/IUL reserve.
  2. Establish guidance that permits effective hedge treatment that is in line with SSAP No. 108. The derivative would be reported at fair value. The change in fair value is bifurcated for reporting based on whether the change is an effective hedge to the interest crediting rate change in the hedged FIA/IUL reserve.

When exposed on Nov. 12, 2020, the working group notified the Life Actuarial (E) Task Force of this proposal. Staff planned to work on an issue paper as this is a substantive guidance change and a potential new SSAP.

Interested parties kept their response brief with the initial exposure, stating that they are still reviewing it, assessing the proposal, and working on potential variations. Interested parties reiterated their commitment to continue working with staff and the SAPWG on “this very complicated and important topic.”

NAIC staff recommended the working group re-expose the item to give interested parties more time to develop their proposal and work with them in the interim.

Disposed Items


This item proposes to expand the quantification exception guidance to 8.b.iii entities in limited situations. The proposal states under the existing guidance, this exception is only permitted for US insurance subsidiaries (aka 8.b.i entity). When US subsidiaries received qualified or adverse audit opinion due to departure from US GAAP, the investment in this subsidiary is admitted if the departure is consistent with SAP accounting that resulted in a more conservative financial statement representation.

Interested parties stated they are not aware of any situations where existing guidance hinders admittance of 8.b.iii entities under the situation outlined.

NAIC staff recommended the working group dispose of the agenda item, noting no changes to statutory accounting. Citing formal and informal feedback, the issue is not prevalent and does not warrant changes to SSAP No. 97.

Other Items

REF #2019-21: SSAP NO. 43R – UPDATE

A small group has been working since December 1, 2020, to determine what should be categorized as a “bond” in Schedule D-1: Long-Term Bonds. This review stems from comments made regarding the SSAP No. 43R project. The group is nearly ready to share its proposal publicly; in the meantime, it would like to highlight two things:

  • Schedule D-1 definition “focuses on investments that reflects issuer credit obligations and asset-backed securities.” The initial project is to identify what will be captured for Schedule D-1; revisions for both SSAP No. 26R and SSAP No. 43R will follow.
  • Investments that are determined to be outside of Schedule D-1 will likely be captured in Schedule BA. NAIC staff plans to work with the Capital Adequacy Task Force (CADTF) to ensure these investments will get appropriate accounting, reporting and RBC treatment.


After its periodic review, SAPWG notes that the Freddie Mac Single Security Initiative appears to be an ongoing program, and so will not likely be terminated in the near future. A decision was made to not move this interpretation to Appendix H – Superseded SSAPs and Nullified Interpretations, and INT 19-02 remains in full effect. NAIC staff will continue to monitor and report to the working group if there are any changes.


The VOSTF is considering revisions to the P&P Manual in relation to revisions to SSAP No. 105R – Working Capital Finance Investment, which was adopted in May 2020 (2019-25). VOSTF directed this to SAPWG at the November 2020 meeting, and according to the SAPWG, “the NAIC staff anticipates addressing this referral when received in the interim.”

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