Industry Insights

Insurance Industry Statutory Accounting Updates

July 2015
Author:  Natalia Votaw

Natalia Votaw



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In June, members of BKD National Insurance Services Practice attended the Insurance Accounting and Systems Association’s (IASA) annual conference in Las Vegas, Nevada. The conference featured an array of educational sessions in career skills development, accounting and finance, risk management and technology for insurance professionals.

Below are some of the nonsubstantive exposures and hot topics in statutory accounting discussed at the conference; as indicated, some were adopted during the June 17 National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles Working Group (SAPWG) phone call.

Nonsubstantive SAP Exposures

Extraordinary and Discontinued Operations (adopted June 17) – Nonsubstantive revisions to Statement of Standard Accounting Practice (SSAP) 24, Discontinued Operations and Extraordinary Items, were exposed and subsequently adopted during the SAPWG call. The revisions—adopted with modification GAAP guidance in ASU 2015-01 and ASU 2014-08—eliminated the term “extraordinary,” improved the definition of “discontinued operations” and added new disclosures.

Related Party Service Transactions – Revisions were proposed to SSAP 25, Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties, to clarify guidance for services received from affiliated entities. If adopted, new disclosures would require information on transactions involving services received as well as the fair value of these services.

Callable Bonds – The following proposed revisions to SSAP 26, Bonds, have been exposed for callable bonds:

  • Reporting prepayment penalties or acceleration fees (if the bond is liquidated before the scheduled termination date) as realized capital gains—rather than as investment income—when received
  • Clarifying the “yield to worst” concept for continuously callable bonds
  • Revising the measurement method for bonds with make-whole call provisions to follow the “yield to worst” concept without exception

Hot Topics

Sales-Leaseback Guidance – SAPWG wants to clarify the guidance on sales-leaseback. Staff is looking to receive feedback on three items:

  • The definition of “property” in the sales-leaseback guidance
  • Clarification of when sales-leaseback transactions involving non-admitted assets should follow the deposit method of accounting
  • Consideration of guidance adopted under GAAP 

An exposure draft likely will follow once guidance is received on these three items.

Investment Classification Project – The investment classification project undertaken by NAIC in 2013 is a comprehensive initiative to review investment-related SSAPs to clarify definitions, scope and reporting for investments. As a result, existing SSAPs covering investments may be revised or new guidance issued. At the 2015 Summer National Meeting, items such as the revised definition of security, contractual amount of principle due, analysis of exchange-traded funds and definitions for nonbond items will be exposed. 

Nonadmitted Assets in Noninsurance Subsidiary – SAPWG received questions on application of guidance in SSAP 97, Investments in Subsidiary, Controlled and Affiliated Entities (SCA), where a reporting entity can transfer non-admitted assets into a noninsurance subsidiary, thereby improving its surplus position. Questions include potential amendments to SSAP 97 guidance restricting the amount of assets held in an SCA that wouldn’t be admitted if held directly by the reporting entity or restricting or eliminating the extent to which non-admitted assets can be transferred to an SCA and then included in the reported value of the SCA.

SAPWG has requested both comments and discussion questions on this issue.

Repurchase Agreements – NAIC is reviewing statutory guidance for repurchase agreements. The Restricted Asset Subgroup is considering a variety of recommendations and reviewing discussion documents received from the interested parties. Proposed revisions, such as clarifying the collateral requirements for repurchase and reverse repurchase agreements and short-term restrictions for repurchase agreements, have been exposed.

To learn more about these topics, please contact your BKD advisor.

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