Statutory Accounting Principles (E) Working Group
September 29, 2007

The Working Group held a HEARING to address comments on previously exposed issues. The following actions were taken during the hearing:

• Ref #2004-11: Treatment of Cash Flows when Valuing Impairments per SSAP 43
• Exposed – Modified the previously exposed change to SSAP 43 —Loan-backed and Structured Securities to include guidance on interest related impairments and wording on Interest Maintenance Reserve, exposed revised language.
• Ref #2006-25: SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88
• Exposed – Exposed modifications discussed during the meeting related to admission and audit requirements. A conference call on this item will be held during the fourth quarter of 2007.
• Ref #2007-06: Quarterly Disclosure of Note 25
• Final – Adopted a nonsubstantive change to SSAP No. 55— Unpaid Claims, Losses and Loss Adjustment Expenses to require quarterly disclosure of favorable or unfavorable loss and loss adjustment expense development for prior year claims in the event of a material change in amounts reported in the annual filing.
• Ref #2007-07: Additional Dividend Disclosure Information for SSAP No. 72
• Final – Adopted additional disclosure requirements included in SSAP No. 72— Surplus and Quasi-reorganizations (SSAP No. 72) modified during the meeting to include dates, amounts, and classification for dividends and other distributions.
• Ref #2007-08: FAS 134: Accounting for Mortgage-backed Securities Retained after the Securitization of Mortgage Loans Held by a Mortgage Banking Enterprise, and amendment of FASB Statement No. 65 (FAS 134)
• Final – Adopted nonsubstantive change to Issue Paper No. 99— Nonapplicable GAAP Pronouncements (Issue Paper No. 99) noting that FAS 134 is rejected as not applicable to statutory accounting principles.
• Ref #2007-09: Revision of SSAP No. 26 Investment Categories
• Deferred – Deferred modifications to SSAP No. 26— Bonds, excluding Loan-backed and Structured Securities (SSAP No. 26) pending resolution of item 2007-27BWG within the Blanks Working Group.
• Ref #2007-10: FSP AUG AIR-1, Accounting for Planned Major Maintenance Activities (FSP AUG AIR-1)
• Final – Adopted nonsubstantive change to Issue Paper 99 adding FSP No. AUG AIR-1 to the listing as this GAAP guidance is not applicable to statutory accounting principles.
• Ref #2007-11: FSP APB 18-1, Accounting by an Investor for Its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon Loss of Significant Influence (FSB APB 18-1)
• Final – Adopted nonsubstantive change to SSAP No. 88— Investments in Subsidiary, Controlled, and Affiliated Entities, A Replacement of SSAP No. 46 (SSAP No. 88), paragraph 34 rejecting FSP No. APB 18-1 as not applicable to statutory accounting principles.
• Ref #2007-12: FSP FAS 143-1, Accounting for Electronic Equipment Waste Obligations (FSP FAS 143-1)
• Final – Adopted nonsubstantive change to Issue Paper No. 99 noting that FSP FAS 143-1 is rejected as not applicable to statutory accounting principles.
• Ref #2007-13: SSAP 55, Paragraph 13, Subsequent Events
• Final – Adopted nonsubstantive change to paragraph 13 of SSAP 55 to clarify that additional information, not resulting from an error in the estimation process, obtained after the March 1 issuance of the annual statements is considered part of the continuously review process, and if material, should be disclosed in a note to the audited annual statements.
• Ref #2007-15: Update SSAP 62 Disclosures
• Final – Adopted nonsubstantive change to SSAP No. 62— Property and Casualty Reinsurance to update finite reinsurance disclosure recommended by the Property and Casualty Reinsurance Study Group.

Next, the Working Group moved to their regular MEETING and reviewed the Maintenance Agenda – PENDING LISTING, taking the following actions:

• Ref #2007-16: Clarification of SSAP No. 26 for Reporting Investments in Commercial Paper
• Exposed – Moved item 2007-16 to the Nonsubstantive Active Listing and exposed a modification to SSAP No. 26, paragraph 2 to separately reference commercial paper and certificates of deposit.
• Ref # 2007-17: FAS 129: Disclosure of Information about Capital Structure (FAS 129)
• Exposed – Moved item to the Nonsubstantive Active Listing and exposed a nonsubstantive change to SSAP No. 72 to change the reference for adopted paragraphs within FAS 129.
• Ref #2007-18: SOP 02-2: Accounting for Derivative Instruments and Hedging Activities by Not-for-Profit Health Care Organizations, and Clarification of the Performance Indicator (SOP 02-2)
• Exposed – Item was moved to the Nonsubstantive Active Listing; exposed nonsubstantive change to Issue Paper No. 99 rejecting SOP 02-2 as not applicable to statutory accounting.
• Ref # 2007-19: SOP No. 98-2: Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising (SOP 98-2)
• Exposed – Item was moved to the Nonsubstantive Active Listing; exposed nonsubstantive change to Issue Paper No. 99 rejecting SOP 98-2 as not applicable to statutory accounting.
• Ref # 2007-20: SOP No. 03-02: Attest Engagements on Greenhouse Gas Emissions Information (SOP 03-2)
• Exposed – Item was moved to the Nonsubstantive Active Listing; exposed nonsubstantive change to Issue Paper No. 99 rejecting SOP 03-2 as not applicable to statutory accounting principles.
• Ref # 2007-21: SOP No. 97-1: Accounting by Participating Mortgage Loans Borrowers (SOP 97-1)
• Exposed – Item was moved to the Substantive Active Listing; NAIC staff was directed to draft an issue paper to incorporate guidance from SOP 97-1 within SSAP No. 40—Real Estate Investments requiring recognition of participation features of mortgage loans at fair value.
• Ref # 2007-22: ASO and ASC Fee-for-Service Income Recording
• Rejected – Item was moved to the Rejected Listing and current guidance for reporting ASO and ASC service fee income retained.
• Ref #2007-23: Audited Tax Basis for Subsidiary Controlled and Affiliated Entities
• Rejected – Item was moved to the rejected listing.

Next, the Working Group reviewed the Maintenance Agenda – SUBSTANTIVE LISTING, ACTIVE REPORT, taking the following actions:

• Ref #2006-18: FIN 48 – Accounting for Uncertainty in Income Taxes
• Update – Subgroup held conference calls during the third quarter and will continue discussions during the fourth quarter of 2007.
• Ref #2006-21: FSP FTB 85-4-1: Accounting for Life Settlement Contracts by Third-Party Investors
• Update – Working Group review the referral response from the Valuation of Securities Task Force and requested interested parties of the ACLI to provide the Securities Valuation Office with information necessary to perform adequate analysis.
• Ref #2006-29: FAS 150: Accounting for Certain Financial Instruments with Characteristics of both Liabilities andEquity
• Update – The Valuation of Securities Task Force will be discussing this issue at the Fall Meeting. The Working Group expects a formal response after these discussions.
• Ref #2006-30: FAS 158: Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—anamendment of FASB Statements No. 87, 88, 106, and 132(R)
• Update – Staff is drafting an issue paper on this guidance. The Working Group noted USAA’s support of adoption of FAS 158. Interested Parties indicated that they would forward the results of their survey on pension benefits.
• Ref #2007-14: Accounting for Debt Securities Subsequent to an Other-Than-Temporary Impairment
• Update – Staff is drafting an issue paper on this guidance.

Next, the Working Group reviewed the Maintenance Agenda – NONSUBSTANTIVE LISTING, ACTIVE REPORT, taking the following actions:

• Ref #2006-09: Accounting for the Gain or Loss On Sale of Real Estate Included in a leaseback transaction
• Exposed – Working Group exposed revised wording which provides a restriction to gain recognition for sale-leasebacks.

Next, the Working Group reviewed any other matters:

• Discussed the Finite Re Survey and directed staff to forward the survey to the Property and Casualty Reinsurance Study Group for future reference.
• Interim meeting minutes for calls on Aug. 14, Aug. 20 and Aug. 24 were adopted.
• Received interested parties’ comments on the Summer 2007 Principles Based Reserving Presentation and directed staff to draft a letter to LHATF.
• Received update on activities of the Property and Casualty Reinsurance Study Group.
• Discussed FASB invitation to comment on whether the IASB exposure drafts ‘Accounting for Insurance Contracts by Insurers and Policyholders’ should be included on the FASB agenda. Directed staff to draft a comment letter and distribute to the Working Group and Interested Parties for email approval before the Nov. 16, 2007 comment deadline.
• Received international accounting update
• Discussed letter from American Health Insurance Plans indicating areas of general agreement, and intent to develop a future blanks proposal to clarify the Annual Statement Instructions for the disclosure on extra contractual obligations.
• Requested interested parties to provide additional information on their concerns with SSAP No. 63—Underwriting Pools and Associations, Including Intercompany Pooling

Comment deadline for issues newly exposed from the MEETING or re-exposed at the HEARING is Nov. 9, 2007. (Only 30 working days provided due to a shortened fourth quarter.)