NAIC 2017 Statutory Accounting Changes – Year in Review

Over the course of 2017 and early 2018, the National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group (SAPWG) adopted various updates to statutory accounting guidance. The most significant update related to expanded disclosures for insurers issuing policies with high deductibles.

Other committees of the NAIC remained active including the Cybersecurity Working Group, which adopted the Insurance Data Security Model Law, which is now available for adoption by the states. The Reinsurance (E) Task Force focused on the impact of the Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance on insurance companies.

Below is an annual update of NAIC adoptions made within the SAPWG that will impact 2017 statutory basis financial statements and a summary of significant activities related to cybersecurity and reinsurance.

You can also, download or print our summary of the accounting and financial reporting actions from the NAIC’s 2017 meetings.

Statutory Accounting Changes

Investment Classification Project
SSAP 26R | IP 156 | Ref# 2013-36 | Effective 12.31.17

The revision adopts the GAAP definition of “security,” which is: A share, participation, or other interest in property or in an entity of the issuer or an obligation of the issuer that has all of the following characteristics:

  1. It is either represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer.
  2. It is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment.
  3. It either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.

The revision clarifies that, while the definition of a bond excludes equity/fund investments, certain bond mutual funds and exchange traded funds (ETFs) specifically identified by the SVO are included in the scope of SSAP No. 26R. Additionally, the measurement guidance for ETFs is revised to state the default measurement method is fair value (or NAV), unless an entity makes the irrevocable election to use a systemic value for certain ETF investments.

Payment Penalties on Callable Bonds
SSAP 26R, SSAP 43R | Ref# 2015-23 | Effective 01.01.17

The revision clarifies that investment income should be calculated by subtracting the par value of the investment from total proceeds. If there is a difference between the book/adjusted carrying value and par value, the difference should be recorded as a realized capital gain/loss. Revision also expands disclosures in Schedule D to capture information specific to prepayment penalties, acceleration fees and investment income on a CUSIP by CUSIP basis and introduces a new disclosure for the number of CUSIPs sold, disposed or redeemed as well as total amount of investment income from prepayment penalties and/or acceleration fees.

INT 01-25: Accounting for U.S. Treasury Inflation-Indexed Securities (U.S. TIPS)
SSAP 26R | Ref# 2016-43 | Effective 04.08.17

The revision clarifies that the accounting treatment in INT 01-25 is limited to U.S. TIPS only. This distinction restricts foreign inflation-indexed securities from recognizing unrealized gains/losses based on the inflation factor.

Money Market Mutual Funds
SSAP 2R | Ref# 2016-18, Ref 2016-35 | Effective 12.31.17

The revisions state that “Money Market Mutual Funds registered under the Investment Company Act of 1940 and regulated under rule 2a-7, shall be accounted for and reported as cash equivalents for statutory reporting.”  The revisions clarify that the accounting and reporting of money market mutual funds is as follows:

  • As cash equivalent on Schedule E – Part 2
  • At fair value, using NAV
  • Unrealized gain/loss recorded as a direct charge to surplus for entities not filing AVR
  • AVR files continue to report unrealized gain/loss under SSAP 7

Mortgage Loans with Multiple Lenders
SSAP 37 | Ref# 2016-39 | 06.08.17

“Participating mortgages” are not within the scope of SSAP 37.

Definition of a Notional
SSAP 86 | Ref# 2015-51 | Effective 01.01.17

Notional amount is defined as “the face value of a financial instrument in a derivatives transaction as of a reporting date which is used to calculate future payments in the reporting currency.”  The notional amount stays static over the duration of the trade unless the instrument is partially unwound or has a contractually amortizing notional.  The revision further details how the definition should be applied to non-futures contracts, futures contracts with U.S. dollar denominated contract and equity index and non-U.S. dollar futures contracts.

ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
SSAP 30, SSAP 48, SSAP 97 | Ref# 2016-47 | Effective 04.08.17

Entities that invest in common stocks of Subsidiary, Controlled and Affiliated Entities that qualify for the equity method of accounting due to an increase in their ownership interest or influence will apply the accounting guidance under SSAP No. 97 as of the date the investment qualifies for equity accounting. The amendment simplifies the accounting by moving from a retrospective to a prospective application for the amount recognized as a result of an increase in the level of ownership interest or degree of influence. Statutory accounting definitions of terms, such as control, are not modified by this GAAP adoption. This update should be applied prospectively.

Surplus Notes
SSAP 41R | Ref# 2014-25 | Effective 01.01.17

Surplus notes with NAIC designations of 1 or 2 are measured at amortized cost.  All others are measured at lower of amortized cost or fair value with the change recorded as an unrealized valuation change.  The admitted asset value shall not exceed the amount that would be admitted if the instrument was considered an equity investment.  If it is probable a reporting entity will not be able to collect amounts contractually due, the surplus note is impaired.

ASU 2015-09, Financial Services – Insurance – Disclosures about Short Duration Contracts
SSAP 55, SSAP 65 | Ref# 2015-37 | Effective 04.08.17

Entities must disclose the following:

  • Information about significant changes in methodologies and assumptions used in calculating the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements for the most recent reporting period presented.
  • Where discounting is used, the amount of interest accretion related to discounting recognized in the income statement and which line item it is recognized in.

All other disclosures required by ASU 2015-09 are rejected for statutory accounting.

Expand High Deductible Disclosures
SSAP 65 | Ref# 2017-11 | Effective 06.08.17

The revisions require the following disclosures:

  1. Gross (of high deductible) amount of loss reserves, unpaid by line of business.
  2. The amount of reserve credit that has been recorded for high deductibles on unpaid claims and the amounts that have been billed and are recoverable on paid claims, by line of business and the total of these two numbers;
  3. Related to amounts that have been billed and are recoverable on paid claims
    1. paid recoverable amounts that are over 90-days overdue and
    2. the amounts nonadmitted
  1. Total collateral pledged to the reporting entity related to deductible and paid recoverables:
    1. the amount of collateral on balance sheet; and
    2. the amount of collateral off balance sheet
  1. The total amount of unsecured high deductible amounts related to unpaid claims and for paid recoverables and the total percentage that is unsecured.
  2. Highest ten unsecured high deductible amounts by counterparty ranking

A threshold of 1% of capital and surplus was added for disclosures related to obligors that are part of a group under the same management or control.

Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts
Ref# 2016-36 | Effective 01.01.17

Appendix A-200 is revised to provide consistency with the Appendix A-695, Synthetic Guaranteed Investment Contracts and Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts Model Regulation (#200).

Repurchase & Reverse Repurchase Disclosures
SSAP 103R | Ref# 2016-16 | Effective 12.31.17

Entities must disclose the following:

  • Strategy behind the agreement
  • Whether the agreements are bilateral and/or tri-party trades
  • Maturity time frame
  • Allocation of the fair value of securities sold and/or acquired by counterparty
  • Identification of counterparty jurisdiction
  • Aggregate fair value of securities sold and/or acquired that resulted in default

AVR and IMR in SSAP 26
SSAP 26R | Ref# 2016-41 | Effective 08.06.17

The revision aligns SSAP 26R with the revised annual statement instruction and clarifies that insurers who report asset valuation reserve (AVR) and interest maintenance reserve (IMR) (primarily life insurers) are to record recognized losses from other-than-temporary impairments in their entirety either to the AVR or IMR, in accordance with the revised annual statement instructions that provide specific guidance.

Guaranty Fund Credits for Short-Duration Contracts
SSAP 35R | Ref#2016-38 | Effective 01.01.17

Health insurers who write short-term contracts on long-duration health products should recognize the guaranty fund assessment liability and the offsetting asset for future tax credits, calculated using anticipated renewals, upon the insolvency of the long-term care insurer.  

Discounting of Long-Term Care Guaranty Fund Assessments
SSAP 35R | Ref# 2017-01 |Effective 01.01.17

Guaranty fund assessment liabilities and related premium tax credit assets from the insolvencies of insurers who wrote long-term care contracts must be discounted, provided the payment period extends beyond one year. Liabilities fully prefunded in the year of the insolvency cannot be discounted. The discount period should align with the payment requirements of the respective jurisdiction.

Entities must use Appendix A-820’s maximum valuation interest rate for whole life policies (paragraphs 5.a., 6.a. and 7.a.) as the discount rate. The discount rate is updated annually.

Entities must disclose the following:

  • Discount rates applied
  • Discounted and undiscounted liability and asset amounts
  • Number of jurisdictions for which guaranty fund liabilities and assets were discounted, respectively
  • Identify the range of years used to discount the guaranty fund liabilities and assets, respectfully, and
  • Weighted average number of years of the discounting time period for guaranty fund liabilities and assets, respectively

PBR – Health
SSAP 54R | Ref# 2016-34 | Effective 01.01.17

The change in valuation as a result of changing morbidity assumptions regarding the length of claim continuance based on regularly updated credible experience is NOT a change in valuation under SSAP 3.

ASU 2016-09, Improvements to Share-Based Payment Accounting
SSAP 12, SSAP 104R | Ref# 2017-05 | Effective 12.31.17

Adopts, with modification, the FASB update that simplifies the “accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.”

Bank Loans
SSAP 26R | Ref# 2017-10 | Effective 10.12.17

The definition of a bank loan is expanded to include bank loans issued directly by a reporting entity to allow for consistent treatment under SSAP 26R as bank loans that are acquired from a financial institution.

INT 17-01: Extension of Ninety-Day Rule for the Impact of Hurricane Harvey, Hurricane Irma and Hurricane Maria
INT 17-01 | Ref# 2017-29 | Effective 10.12.17

Insurers with policyholders impacted by hurricanes Harvey, Irma and Maria may elect an optional 60 day extension of the 90-day rule for uncollected premiums due to insurers.  The interpretation is automatically nullified on February 16, 2018.

Foreign Insurance Subsidiary, Controlled and Affiliated (SCA) Entities
SSAP 97 | Ref# 2017-20 | Effective 10.12.17

The limited statutory adjustments listed in paragraph 9 of SSAP 97 apply to all foreign insurance SCA’s regardless of whether they have audited U.S. GAAP financial statements or audited U.S. foreign GAAP financial statements.

Wash Sales Involving Money Market Mutual Funds
SSAP 2R, SSAP 103R | Ref# 2017-23 | Effective 10.12.17

Given the transaction volume and relative safety of the investments, acquisitions and disposals of shares in money market mutual funds are not subject to wash sale disclosures.

Impact of Future Settled Premiums on Option Valuations
SSAP 86 | Ref# 2016-48 | Effective 11.06.17

Entities that invest in derivatives with financing premiums must disclose that fact as well as aggregate information on financing premiums. Financing premiums include the premium cost to purchase the derivative that is paid at the end of the contract or throughout the contract.

A-791 Life and Health Insurance Agreements
Ref# 2016-44 | Effective 04.08.17

Appendix A-791 was updated to include language in the Life and Health Reinsurance Agreements Model Regulation (Model #791), which addresses written reinsurance agreement criteria for an agreement to be used to reduce a liability or establish an asset in the financial statements. Such criteria include the agreement must (1) represent the entire agreement and there are no understandings regarding the reinsured business between the parties outside of the agreement, and (2) changes to the agreement are invalid unless made through an amendment signed by both parties.

Use of Net Asset Value Instead of Fair Value
SSAP 100R | IP 157 | Ref# 2017-24 | Effective 01.01.18, early adoption permitted

The revisions allow for the use of net asset value (NAV) as a practical expedient to fair value (a GAAP concept) when specifically named in a SSAP or when specific conditions exist.  Investments reported at NAV must be identified separately in the fair value hierarchy to permit reconciliations.  Certain disclosures are required in instances when the asset may sell below NAV.

Extension of SCA Filing Deadlines
SSAP 97 | Ref# 2017-08 | Effective 01.01.18

The SCA deadlines for 2018 filings are as follows:

  • Sub 1 – 90 days after the initial acquisition or formation of an SCA.
  • Sub 2 – August 31, with a provision to allow for a deadline a one-month after the audit date for SCA entities that regularly receive their audit report after August 31.

Rejected ASU’s

The following FASB ASU’s were rejected by the SAPWG during 2017

  • ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
  • ASU 2011-08, Testing Goodwill for Impairment
  • ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment
  • ASU 2013-08, Financial Services – Investment Companies – Amendments to the Scope, Measurement and Disclosure Requirements
  • ASU 2014-02, Accounting for Goodwill (a Consensus of the Private Company Council)
  • ASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory
  • ASU 2017-02, Clarifying When a Not-for-Profit Entity that is a GP or a LP Should Consolidate
  • ASU 2017-03, Amendments to SEC Guidance
  • ASU 2017-04, Simplifying the Test for Goodwill Impairment
  • ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
  • ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities


The Cybersecurity Working Group adopted the Insurance Data Security Model Law (Model #668) at the summer meeting. Each state must individually adopt the law to hold insurers accountable. That said, insurers that are compliant with the New York Department of Financial Services cyber rules (23 NYCRR §500) are compliant with the NAIC’s model law.

Below are key provisions of Model #668:

  • Emphasis on the importance of risk assessment
  • The Chief Information Security Officer must annually report in writing to the Board of Directors regarding the company’s compliance
  • The insurer must annually certify to the State Commissioner they are in compliance with the requirements

At the fall meeting, the Cybersecurity Working Group heard an update on federal activities related to cybersecurity, including the U.S. Department of the Treasury’s recommendation for prompt adoption of the Model Law at the state level.


Throughout 2017, the Reinsurance (E) Task Force discussed the Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement). The Covered Agreement was signed in September 2017 and contains provisions related to group capital, group supervision and reinsurance, including the elimination of the reinsurance collateral requirements for EU reinsurers that meet certain requirements. It is important to remember the following:

  • States must amend their credit for reinsurance laws for EU reinsurers to be eligible for collateral elimination
  • The agreement is available for new and renewal business or newly amended contracts involving prospective reinsurance –retroactive reinsurance is excluded
  • States have five years to adopt the reinsurance reforms

The NAIC will work closely with States and interested parties in 2018 to determine how best to implement reinsurance reform within the five year framework and ensure the risks created for U.S. ceding companies as a result of the Covered Agreement are properly addressed.

The Reinsurance (E) Task Force continues to monitor the implementation of the 2011 and 2016 revisions to the Credit for Reinsurance Model Law (Model #785), and the 2011 revisions to the Credit for Reinsurance Model Regulation (Model #786). As a refresher, the 2011 revisions to Model #785 and Model #786 provided for reduced collateral requirements for credit for reinsurance. The NAIC made the amended reinsurance model laws an accreditation standard in 2016. As of 12.31.17, 41 states have passed legislation to implement the 2011 revisions to Model #785 and 32 of those states have adopted the revisions to Model #786. 

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Lauren Williams
Lauren Williams | Partner