With industry deeply embedded in the year-end process, January provided an opportunity for several regulator-to-regulator meetings; seven in total with two meetings conducted by the Statutory Accounting Principles Working Group (SAPWG). There was a bit of public activity as shown below. And, despite the year-end process being in “full speed ahead” mode, interested parties (IPs) held a number of calls on various issues.
Life Risk-Based Capital (LRBC) Working Group – via email & January 26, 2023
By way of an email vote, this Working Group adopted C-2 Mortality Risk guidance for year-end 2022 reporting. The guidance is based on questions that have been received and anticipated resulting from the implementation of the new C-2 Mortality Risk calculation as part of the LRBC.
The January 26 meeting began with a discussion of proposed C-2 Mortality Risk changes for the 2023 formula. If adopted, the proposal would address group permanent life insurance, assigning that line of business the same factors as individual permanent life insurance. Some miscellaneous instructional guidance also is included in the proposal. In addition, the proposal would add new disclosures to the Note to Financial Statements in the annual statement, allowing for a direct pull of amounts from the statement to the formula. The proposal was exposed for a 30-day comment period with the goal of including everything in the 2023 annual reporting. The discussion then moved to proposed factor changes for CM6 and CM7 mortgage loans. This proposal also was exposed for a 30-day comment period. The final action of the day was to release a proposal for a 15-day comment period that would revise the trend test in the RBC formula. All proposals can be found on the Working Group’s website.
Property Risk-Based Capital (PRBC) Working Group – via email
On January 18 via email, the Working Group released a revised listing of 2022 U.S. and non-U.S. catastrophe events for a seven-day comment period, ending January 25. This revised edition replaces the listing that was adopted in November. At the time of writing this summary, notification of final adoption had not been received.
Valuation of Securities Task Force – via email January 30
The Task Force extended the comment deadline for the Collateral Loan Obligation Modeling Methodology (Excluding Scenarios and Probabilities) exposure until Friday, February 17.
Health Risk-Based Capital (HRBC) Working Group – via email January 30
Reference 2022-15-H was released for a 30-day comment period ending February 28. The proposal does not modify the actual HRBC calculation but is a format change that would renumber the lines on Page XR008 of the formula.
Interested Parties (IPs)
IPs met several times to discuss a variety of topics, some of which were SAPWG exposures from the NAIC National Meeting. The write-up below goes into more detail than is normally included for IP activity to alert the reader to issues that will be addressed in future NAIC activity.
Early in January, IPs submitted a request to the NAIC asking that the Accounting Practices and Procedures Manual (Manual) be made available as a licensed PDF product. The request was made based on a survey conducted during 2022. The current platform used for the Manual is very difficult to search and has limited print capabilities. A PDF format would make the Manual much more accessible.
With the comment deadline of February 10 looming in the very near future, IPs continued discussions on proposed revisions to various Statement of Statutory Accounting Principles (SSAP) revisions resulting from the development of a principles-based bond definition. The two main SSAPs that would be affected are SSAP No. 26R – Bonds and SSAP No. 43R – Asset Backed Securities (formerly Loan-backed and Structured Securities). However, several other SSAPs also will require revisions. A listing of the other SSAPs and a summary of the changes needed to each are included in the exposure. All of the bond definition related exposures can be found on SAPWG’s website, under the Exposure Drafts tab.
Under exposed SAPWG reference item 2022-14 – Tax Equity Investment Discussion Document, IPs examined possible changes in the accounting and reporting for equity investments in tax credits. The current exposure includes questions to industry to be addressed in the response. Ultimately, this discussion could (and probably will) result in new guidance that would revise or supersede SSAP No. 93 – Low Income Housing Tax Credits Property Investments and SSAP No. 94 – Transferable and Non-Transferable State Tax Credits. The proposal would expand the scope of transactions that would be admitted assets to include federal business and state premium tax credits. (The current SSAPs are very limited in scope, making newer investments nonadmitted assets.) Although the exposed document concentrates on equity investments with tax credits, IPs feel the language should be expanded to address fixed-income investments with tax credits. A comment letter has been drafted and is currently being reviewed and revised for submission by February 10, 2023.
With new revisions to SSAP No. 86 – Derivatives being effective January 1, 2023, IPs met to discuss specific proposed statement reporting changes to the Notes to Financials and Schedule DB that need to be in place for year-end 2023. Since early adoption of the SSAP No. 86 revisions for year-end 2022 was allowed, companies that early-adopted the revisions have encountered some issues that need to be addressed prior to the formal Blanks Working Group adoption. These items will be included in the IPs’ comment letter.
In 2022, INT 22-02: Third Quarter 2022 Reporting of the Inflation Reduction Act – Corporate Alternative Minimum Tax (INT) was put in place providing guidance on the corporate alternative minimum tax (CAMT) under the Inflation Reduction Act enacted late in 2022. The original INT provided guidance for the third quarter 2022 reporting of CAMT and was later extended through the first quarter of 2023. What is now needed is more guidance going beyond the first quarter of 2023 and permanent revisions to SSAP No. 101 – Income Taxes. During the January 19 call, a draft paper to be sent to NAIC staff on the issue was discussed, with IPs being asked to return any comments on the paper the next week. One of the suggestions in the letter is screening scenarios for the elimination of certain insurers from the disclosure/accounting requirements.
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