NAIC updates including SSAP No. 101

Following are summaries of some of the more pertinent actions taken by various working groups throughout the NAIC Summer 2012 National Meeting.

Statutory Accounting Principles Working Group

The follow discussion provides an update on revisions to existing Statement on Statutory Accounting Principles (SSAP) No. 101, an update on new SSAP’s, and exposure of new guidance.

  • SSAP No. 101 Implementation Questions and Answers Guide
    The SSAP No. 101 Implementation Questions and Answers (Q&A) was adopted at the NAIC Summer National Meeting. The Q&A provides additional clarification to the guidance issued under Statement of Statutory Accounting Principles No. 101, Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10, that became effective January 1, 2012.
     
    The Q&A provides further insight into the calculations performed under paragraphs 11.a., 11.b. and 11.c. of the admissibility test. Under the first component, the Q&A highlights that reversing temporary differences are specific to each year in which they reverse, and in turn, to the specific year(s) to which they can be carried back corresponding with tax loss carryback provisions. This is similar to how a reporting entity would approach the filing of a Form 1139, Corporation Application for Tentative Refund, with the Internal Revenue Service. While the change to using current period capital and surplus under paragraph 11.b. may result in increased difficulty, the Q&A outlines administrative ease if a reporting entity’s surplus is increasing. The phrase “an amount that is no greater than" under paragraph 11.b.ii. allows an entity to utilize an amount lower than what would be allowed, if it utilized the amount of statutory capital and surplus as required to be shown on the statutory balance sheet of the reporting entity for the current period’s statement. For example, the reporting entity could utilize the amount of statutory capital and surplus from the most recently filed statement. Lastly, the Q&A clarifies that the third component does not require scheduling of deferred tax assets and deferred tax liabilities beyond that required in the determination of the statutory valuation allowance adjustment.
     
    In addition to providing the above clarification related to the admissibility calculation, the Q&A also provides further guidance relating to tax planning strategies, tax loss contingencies, and the statutory valuation allowance. Sample calculations and other examples are provided throughout the Q&A in order to provide reporting entities further clarification and insight into the statutory accounting principles for income taxes under SSAP No. 101. The Q&A is available on NAIC’s website > 
  • SSAP No. 35R / ASU 2011-06, Fees Paid to the Federal Government by Health Insurers
    The working group had exposed for comment in late 2011 that Accounting Standard Update (ASU) 2011-06 be rejected for statutory accounting and instead proposed SSAP No. 35R prescribe the accounting for the annual fee mandated by the Patient Protection and Affordable Care Act. The proposed changes would require accrual of the annual fee on health insurers in 2013, instead of 2014 as prescribed in ASU 2011-06.
     
    Industry participants criticized the proposal arguing that that no liability arises in 2014 and thus requiring accrual in 2013 would create complexity and unintended implications. Regulators announced they would not require the accrual of the fee in 2013. However, because companies will have sufficient information to assess the financial implications of the relevant sections of the Affordable Care Act by year-end 2013, disclosure pursuant to SSAP No. 9, Subsequent Events should be made in the annual audited financial statements and the annual statement. 
     
    The working group has not determined how to account for the assessment in 2014 and subsequent years.
  • SSAP No. 100 and Review of ASU 2011-04, Fair Value Measurements
    The working group wants guidance in SSAP No. 100 to mirror US GAAP, as much as possible. The working group exposed for comment revisions to SSAP No. 100 to adopt, with some modifications, the GAAP guidance in ASU 2011-04. The working group explicitly proposed to reject the guidance for fair value of liabilities, including non-performance risk, and has proposed expanded disclosures.
     
    Two substantive concerns were raised at the NAIC Summer 2012 National Meeting. First, interested parties object to expanding the ASU 2011-04 disclosures to non-public companies for certain items. Secondly, interested parties do believe the guidance related to the fair value of a liability when quoted prices in an active market for an identical liability are not available should be considered.
     
    The working group is in the process of drafting an Issue Paper and will work with interested parties on comments received. An effective date for the proposed new standard has not been discussed.

Corporate Governance Working Group

The working group has met eight times by conference call over the spring and summer. A key area of discussion within the working group covered:

  • Corporate Governance Comparative Analysis
    The working group had previously summarized the corporate governance requirements existing in US regulation and aligned them to the seven principles of the United States Insurance Financial Solvency Framework. These were to be divided amongst the states with the intention that the states would carry out a comparative analysis against their assigned principle and to provide recommendations to the working group.
     
    Recommendations were provided to the working group and these were summarized in the document entitled "Proposed Responses to Comparative Analysis." These recommendations are drafts and the working group highly encourages interested parties to provide feedback. The working group did consider that improvements could be made, particularly with regards to consistency between states.

NAIC / AICPA Working Group

The following issues were discussed during the summer by the NAIC / AICPA Working Group:

  • Review of Premium Thresholds for Model Audit Rule (MAR)
    Approximately 92% of the premiums written are covered through the current threshold. Thus, no changes were considered necessary and no changes were made to the Model Audit Rule.

  • MAR Implementation Guide 
    Proposed addition to the MAR implementation guide was exposed. This applies to holding companies and parent insurance companies not subject to Section 404, but holding companies wish to submit a group Management Report on Internal Control over Financial Reporting.

  • Restricted Assets
    Due to concerns from some regulators on material amounts of restricted assets at some insurers, the working group asked the AICPA representatives for assistance in determining if generally accepted auditing standards require confirmations of restricted/pledged assets with banks and what the requirement is for necessary disclosures.