Key Takeaways from NAIC Spring 2018 Meeting

People signing a contact around a table

The National Association of Insurance Commissioners (NAIC) held its spring national meeting March 24–27, 2018, in Milwaukee, Wisconsin. The meeting was convened to address NAIC Committee and Task Force activities and attended by NAIC members, state insurance regulators and individuals from a variety of insurance companies (interested parties).

Committees, task forces and working groups held meetings during the weekend to consider and address matters on their respective agendas.

This article provides further detail of the discussions and results of the following meetings:

  • The Accounting Practices and Procedures Task Force’s Statutory Accounting Principles Working Group
  • The Financial Regulation Standards and Accreditation Committee
  • The Accounting Practices and Procedures Task Force’s Blanks Working Group

Accounting Practices & Procedures Task Force
Statutory Accounting Principles Working Group

The Statutory Accounting Principles Working Group (SAPWG) assembled to:

  • Review and adopt various noncontested items
  • Review comments on exposed substantive items
  • Review comments on exposed nonsubstantive items
  • Discuss the Pending List for its Maintenance Agenda
  • Discuss the Active List for its Maintenance Agenda
  • Discuss other matters that have been brought before the SAPWG

Noncontested Items
The SAPWG discussed and approved the following items during the meeting:

  • Ref #2017-03: Rejected Accounting Standards Update (ASU) 2017-06, Master Trust Reporting, as not applicable to statutory accounting in Appendix D.
  • Ref #2017-30: Updates to the Presentation and Disclosure of Pension and Postretirement: recommended revisions to remove the Level 3 reconciliation for assets from benefit plans.
  • Ref #2017-36: INT Updates will be revised to include language that terrorism risk insurance will expire when Congress terminates the program (rather than having it expire automatically every five years, with subsequent update approvals being needed).
  • Ref #2017-37 & 2016-19: Recommended adoption of exposed revisions to Statement of Statutory Accounting Principles (SSAP) No. 47 to reject the revenue recognition ASUs.

Comments on Exposed Substantive Items
The SAPWG only had one matter for discussion on exposed substantive items: Ref #2017-32: SSAP No. 30 – Investment Classification Project.

NAIC staff recommended the SAPWG direct NAIC staff to draft an issue paper proposing substantive revisions to SSAP No. 30—Unaffiliated Common Stock, including improvements to the common stock definition inclusion of closed-end funds and unit investment trusts within the scope of SSAP No. 30 and certain reporting enhancements to capture NAIC designations on Schedule D-2-2.

Comments on Exposed Nonsubstantive Items
The meeting continued with a discussion of the following nonsubstantive exposure items:

  • Ref #2016-48: Impact of Future Settled Premiums on Option Valuations
  • Ref #2017-18: Goodwill Limitation in SSAP Nos. 68 and 97
  • Ref #2017-21: Double Counting of Surplus Notes
  • Ref #2017-31: Wash Sale Disclosure
  • Ref #2017-34: FASB Codification References
  • Ref #2017-35: Policy Loans
  • Ref #2018-01: Federal Income Tax Reform

Discussion of the Maintenance Agenda Pending List
The Pending List for the Maintenance Agenda contained the following 12 items:

  • Ref #2018-03: Reporting NAIC Designations as Weighted Averages
  • Ref #2018-04: VOSTF – Bank Loan Referral
  • Ref #2018-05: VOSTF/BWG Symbol Changes
  • Ref #2018-06: Regulatory Transactions – Referral from the Reinsurance (E) Task Force
  • Ref #2018-07: Surplus Note Accounting – Referral from the Reinsurance (E) Task Force
  • Ref #2018-08: Private Placement Variable Annuities
  • Ref #2018-09: SCA Loss Tracking
  • Ref #2018-10: 2019 ACA Section 9010 Assessment Moratorium
  • Ref #2018-11: ASU 2017-15, Elimination of FASB Topic 995 U.S. Steamship Entities
  • Ref #2018-12: ASU 2018-03, Recognition and Measurement of Financial Assets and Financial Liabilities
  • Ref #2018-13EP: Editorial Update
  • Ref #2018-14: Update INT 05-05 Medicare Part D Definitions

The majority of these items were moved to the Active List with exposure of revisions.

Discussion of the Maintenance Agenda Active List
The Active List for the Maintenance Agenda contained the following four items:

Ref #2016-03 – VAIWG – Special Accounting Treatment
NAIC staff is currently working with limited American Council of Life Insurers representatives on the issue paper. It’s anticipated to be available for exposure at the spring national meeting or shortly thereafter.

Ref #2016-20 – Credit Losses
On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments—Credit Losses, to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments.

NAIC staff is currently working on a draft issue paper, which identifies U.S. generally accepted accounting principles (GAAP) concepts under the expected credit loss ASU and provides an initial NAIC staff assessment for applicability under statutory accounting principles (SAP), as well as possible modifications from U.S. GAAP. When exposed, NAIC staff will recommend interested party comments on whether the proposed SAP concepts—particularly those that detail possible modifications from GAAP—assist in addressing their concerns.

Ref #2017-25 – Wholly Owned Bond Portfolio
This sponsor-submitted agenda item requested consideration of a “look-through” approach for underlying bond investments in a limited liability company. NAIC staff recommended this agenda item be disposed without statutory accounting modifications. In response to the referrals, the Valuation of Securities (E) Task Force and the Blanks (E) Working Group are considering revisions to allow NAIC designation reporting on Schedule BA for all entities.

Ref #2017-33 – Derivatives and Hedging
This agenda item was drafted to consider ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the hedge accounting guidance in current U.S. GAAP.

NAIC staff is drafting an issue paper to review the guidance in ASU 2017-12. NAIC staff recommended that this issue paper be exposed to solicit comment from regulators and industry on the revisions that would be necessary to SSAP No. 86 to incorporate suggested modifications in response to the ASU, as well as comments regarding differences between SAP and U.S. GAAP that should be retained.

Other Matters Brought Before the Working Group

Ref #2016-02 – Leases
NAIC staff is completing revisions to the drafted SSAP No. 22R – Leases and an accompanying issue paper.

The updated materials will be presented for exposure at the summer national meeting.

Ref #2017-12 – Amortization and Accretion of Surplus Notes
This agenda item addresses amortization and accretion of surplus notes. Discussion of this topic is ongoing.

Ref #2017-28 – Reinsurance Risk Transfer
The SAPWG has received comments and provided direction for the next phase of work on this agenda item, including:

  • Forming informal drafting groups
  • Deleting the definitions of long-duration and short-duration, which were exposed in August
  • Identifying the next steps for revising the exposed SSAP No. 62R, paragraph 29

Review of GAAP Exposures
The SAPWG is looking at two FASB exposures and how they will affect SAPs:

  • Derivatives and Hedging (Topic 815): Inclusion of the Overnight Index Swap (OIS) Rate Based on the Secured Overnight Financing Rate (SOFR) as a Benchmark Interest Rate for Hedge Accounting Purposes (March 30, 2018, comment deadline)
  • Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements (a consensus of the FASB Emerging Issues Task Force) (April 30, 2018, comment deadline)

Financial Regulations Standards & Accreditation Committee

The Financial Regulations Standards and Accreditation Committee assembled to:

  • Discuss revisions adopted in 2017 to NAIC publications referenced in the Accreditation Standards
  • Discuss amendments to the Life and Health Insurance Guaranty Association Model Act (#520)
  • Consider adoption of the 2014 revisions to the Insurance Holding Company System Regulatory Act (#440) as an addition to the Part A Accreditation Standards
  • Receive an update on the effect of the Covered Agreement on the Term and Universal Life Insurance Reserve Financing Model Regulation (#787) and the 2016 revisions to the Credit for Reinsurance Model Law (#785)

Accounting Practices & Procedures Task Force
Blanks Working Group

The SAPWG voted to present 18 additional items for exposure, with an expected adoption in June 2018—look for details after the adoption.

Contact Jim or your trusted BKD advisor if you have questions.

Source for portions of this article: The majority of the sections in this paper contain summaries of the regulations and previously exposed memoranda. This article also contains summaries of the related recommendations by the respective committees and working groups. These summaries are reproduced in this article directly from the related agendas, exposure memoranda and recommendation motions that were provided to attendees during the conference.

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