September’s regulator activity was very light, as everyone took this time to absorb activity that occurred during the August National Meeting and to map out plans of action going into year-end. However, with several major reporting changes looming in the investment schedules beginning with January 1, 2025, along with lots of new accounting because of the bond project, Interested Parties (IPs) were very active.
Blanks Working Group (BWG) – September 13, 2023 via Email
On September 14, BWG posted a memo from the Statutory Accounting Principles Working Group (SAPWG) regarding the recent adoption of Interpretation (INT) 23-01: Net Negative (Disallowed) Interest Maintenance Reserve. With the adoption of the INT, companies will be allowed to apply INT 23-01 beginning with the third quarter of 2023. The posting not only includes a complete copy of the INT, but also details a disclosure to be included in the Notes to the Financial Statements beginning with the third quarter. Although the note disclosure must be completed by those companies admitting negative IMR, it will not be data-captured for 2023.
Capital Adequacy Task Force – September 18, 2023
This unexpected meeting of the Task Force was scheduled due to errors found in the risk-based capital (RBC) calculations during the statement software vendor testing period. Corrections for the reporting of affiliated investments for all of the 2023 RBC formulas needed to be put in place, as the errors would have had a material effect on some companies’ RBC results. The RBC Newsletters were all revised as well, alerting companies to the last-minute corrections being made.
Statutory Accounting Principles Working Group (SAPWG) – September 21, 2023
The purpose of this meeting was to review comments received on items that had been previously exposed for comment at the August National Meeting with the comment period ending September 12.
|2023-12||Revisions to Statutory Statements of Accounting Principles (SSAP) No. 48 – clarification of residual reporting where the investments are in SSAP No. 48 entities.||Adopted, effective immediately.|
This item was adopted to be effective immediately, but in particular for year-end 2023 reporting. It will now require BWG adoption to become effective. When adopted by BWG, it will be a last-minute statement instructional change. The adopted revisions to SSAP No. 48 are meant to clarify the scope and reporting for investments classified as residual interests. After reviewing residuals reported on Schedule BA at year-end 2022, NAIC staff indicated it was apparent that reported residuals may have been under presented because of the various forms residuals investments can have. What was missing was the concept that companies could hold investments that have the substance of residual investments in the form of limited partnerships, joint ventures, or other equity fund investments. These revisions fill that need. However, the reference to the bond definition within the revisions will not become effective until January 1, 2025.
|INT 23-02||Third Quarter 2023 Inflation Reduction Act – Corporate Alternative Minimum Tax (CAMT).||Effective immediately.|
The above item extends INT 23-02 through the third quarter of 2023. It was previously scheduled to end with the second quarter. The guidance covers the reporting of the CAMT. Reporting companies should disclose whatever information is available and their applicable reporting status. If the company can make a reasonable estimate of its CAMT 2023 liabilities, the estimate should be disclosed for third quarter 2023. If a reasonable estimate is not possible because of pending material information, that fact is to also be disclosed. A few minor edits were made to the proposed language prior to adoption. Since the INT supersedes existing SSAP guidance, a two-thirds approval vote of the Working Group was needed for adoption. The INT will be nullified on November 16, 2023, which is the day after third-quarter filings are due.
|INT 23-03||CAMT guidance for year-end 2023 and beyond.||Adopted, effective December 31, 2023.|
The purpose of the above INT is to provide CAMT reporting guidance for periods on and after year-end 2023. The CAMT applies only to corporations (determined on a tax-controlled group basis as defined for federal income tax purposes) with average annual adjusted financial statement income greater than $1 billion for three prior taxable years for U.S. corporations, or $100 million for certain foreign-owned corporations. Several minor edits were made to the proposal prior to adoption. There was not much discussion on the INT, except for paragraph 37.b, covering tax sharing agreements. IPs were concerned about the transition period of the INT, since it will most likely require changes to an insurance group’s tax sharing arrangement. Those changes require approval from the domiciliary regulator. IPs asked what would be the procedure if the new/revised tax sharing agreement was not approved by the domiciliary regulator prior to the annual statement filing deadline? IPs had suggested several edits to that paragraph, which were rejected. The original wording was retained. Accordingly, if a reporting entity requests revisions to or files a new tax allocation agreement prior to the end of 2023 and the domiciliary regulator has indicted they have no objections to the use of the revised/new tax allocation agreement while it is under review, the agreement can be used for 2023 reporting. If the revised/new agreement has not been filed with the domiciliary regulator prior to year-end 2023, the reporting insurer will need to discuss the correct handling with the regulator.
Reinsurance Task Force – September 21, 2023 via Email
The Task Force released for comment a Property/Casualty Risk-Based Capital (PRBC) proposal that would add a new disclosure for catastrophe (CAT) reinsurance programs. The comment period is for 30 days, ending October 23. Because of the number of catastrophe-related insolvencies and the increasing cost of CAT reinsurance, state regulators feel they need additional details from insurers on the structure of their catastrophe reinsurance programs, including any changes for the prior year. Since this information may be regarded as confidential and proprietary, the proposal is to add this information as part of the annual PRBC. After reviewing any received comments, the Task Force plans to send a referral and its recommendations to the PRBC Working Group for further action.
NAIC/American Institute of Certified Public Accountants (AICPA) Working Group – September 28, 2023
The purpose of the meeting was to conduct the annual review of the Model Audit Rule premium threshold to determine if it needed adjustment. Information provided by the NAIC staff indicated that the current premium threshold continues to cover more than 90% of the insurance entities. No adjustments were made. The AICPA then provided a summary on recent auditing pronouncements for 2023. Brief summaries were provided on:
- Statement of Auditing Standard (SAS) No. 143, Auditing Accounting Estimates and Related Disclosures
- SAS No. 144, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained from External Information Sources
- SAS No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
- SAS No. 149, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors) (effective on or after December 15, 2026)
Interested Parties (IPs)
Although official NAIC group activity was limited, statutory accounting and reporting IPs were very active. The Blanks IPs met weekly to discuss exposures for reporting changes to Schedule D, Schedule BA, and associated investment summary schedules resulting from the bond definition project. IP comments on these proposals are due October 12; however, when adopted the proposals will not be implemented until January 1, 2025. BWG has scheduled a November 7 meeting to discuss these proposals and a couple of others. Accounting IPs held “regular” meetings to address SAPWG items that were exposed for comment during the August NAIC National Meeting. One set of proposals had a comment deadline of September 12 and the proposals were effective immediately, which means they could affect a company’s third-quarter and/or annual statement filings. (See SAPWG meeting summary above.) Other proposals had a comment deadline of September 29. Of these exposures, one was singled out for a series of separate meetings, proposal #2019-21. This proposal would revise SSAP No. 21R – Other Admitted Assets on the classification, valuation, and reporting of debt securities that do not qualify as bonds. The revisions to SSAP No. 21R have turned out to be quite complicated, at least from an industry point of view. In an unusual move, SAPWG has scheduled a call for October 23, prior to the November NAIC National Meeting. SAPWG also is on the schedule for that National Meeting.
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