FOR IMMEDIATE RELEASE

NAIC ADOPTS ACCOUNTING CHANGE

SAN FRANCISCO (Dec. 7, 2009) — Members of the National Association of Insurance Commissioners (NAIC) adopted changes to Statement of Statutory Accounting Principles (SSAP) No. 10-Income Taxes. The changes have been considered by financial regulators since the fall and were extensively discussed at the Executive/Plenary session of the NAIC Winter National Meeting before being adopted. The primary issue was finding the appropriate amount of conservatism in the calculation of an insurer's admissible deferred tax assets.

Deferred tax assets represent a difference between an insurers’ statutory and tax accounting values that will reverse in the future, and when reversed, will create lower taxes for the insurer in the future. One of the most common examples of a deferred tax asset results from the higher statutory policyholder reserves and the related lower reserve for tax purposes. Deferred tax assets (and liabilities) are recognized by all types of entities who file financial statements using U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards. U.S. insurance regulators have required deferred tax assets and deferred tax liabilities to be recognized in statutory financial statements since 2001, but the amount of such assets that can be recognized is significantly limited under an admissibility formula. With the adopted change, the amount of deferred income tax assets is still significantly limited, but some of the overconservatism has been reduced.

"Insurance regulators have long understood the need for conservatism in insurer's financial statements as evidenced by our current conservative reserving requirements, disallowance of assets for acquisition costs and non-admission of many other assets," said Roger Sevigny, NAIC President and New Hampshire Insurance Commissioner. "This change recognizes that fact, but also recognizes that overconservatism can actually be detrimental to consumers."

The change is effective for insurers’ year-end 2009 statutory financial statements and the impact of the change will be disclosed in the notes to financial statements in the insurers statutory filings.

"The change provides for uniformity and consistency in the use of deferred tax assets, increasing transparency and thus helping to further strengthen the industry and ultimately the protection of insurance consumers," said James Wrynn, New York Insurance Superintendent. "This change, when coupled with an explicit valuation allowance requirement on such assets, and increased disclosure on these assets, better depicts the true economic condition of the insurer in the statutory financial statements."
 

About the NAIC

Formed in 1871, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC has three offices: Executive Office, Washington, D.C.; Central Office, Kansas City, Mo.; and Securities Valuation Office, New York City. The NAIC serves the needs of consumers and the industry, with an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace. For more information, visit www.naic.org.

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