Accounting Practices and Procedures (E) Task Force
December 3, 2007

The Accounting Practices and Procedures Task Force met on Monday, Dec. 3, 2007. During this meeting, the task force took the following actions:

Action Items (See the below for details of the actions at each group):

• Adopted the report of the Emerging Accounting Issues Working Group;
• Adopted the report of the Statutory Accounting Principles Working Group;
• Adopted the report of the Blanks Working Group as modified during the Task Force Meeting.

Emerging Accounting Issues Working Group:

• Adopted two Consensus Positions as final:
• INT 07-06: rejecting FSP EITF 85-24-1: (Receipt of Cash for the Right to Future Distribution Fees for Shares Previously Sold) as not applicable to statutory accounting
• Amended INT 03-03: Admissibility of Investments Recorded on the Audited GAAP Equity of the Investee when a Qualified Opinion is Provided to add that a departure from GAAP due to a statutory audit need not be quantified
• Deferred action on the following issues:
• INT 07-04: EITF 06-4: Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements
• INT 07-05: EITF 06-10: Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements
• Balance Sheet Presentation of Funding Agreements Issued to a Federal Home Loan Bank (FHLB)

Statutory Accounting Principles Working Group:

• Adopted the following substantive changes as final:
• Issue Paper No. 124 (Impairments on loan backed and structured securities)
• SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88
• Adopted the following nonsubstantive changes to:
• SSAP No. 22—Leases allowing immediate gain recognition for real estate sale-leaseback transactions settled in cash
• SSAP No. 26 (Bonds) clarifying that commercial paper is to be classified as a bond, regardless of the maturity
• SSAP No. 72 (Surplus) to update the adopted paragraphs within FAS 129 (Capital Structure Disclosures)
• Issue Paper No. 99—Nonapplicable GAAP Pronouncements rejecting SOP 02-2 (hedging by NFP health care), SOP 98-2 (Fund Raising) and SOP 03-2 (greenhouse gas emissions), as not applicable to statutory accounting
• SSAP No. 1 (Disclosures) requiring disclosures for the 2007 Annual Statement on subprime mortgage exposure
• Formed two subgroups to review 1) FAS 157: Fair Value Measurements, fair value concepts in FAS 159 (Fair Value Option) and a submission regarding the disclosures in FAS 157 and 2) to consider SOP 03-1 (Separate Accounts)
• Exposed the following changes  for comment with a Feb. 15, 2008 comment deadline:
• Issue Paper 99, rejecting FAS 159 (Fair Value Option), FSP SOP 78-9-1 (Interaction of SOP 78-9 and EITF 04-5), SOP 03-5 (Financial Highlights of Separate Accounts) and FAS 150 (Financial Instruments with Characteristics of both Liabilities and Equity) as not applicable to statutory accounting
• SSAP No. 40—Real Estate Investments to incorporate guidance pertaining to participating mortgage loans (SOP 97-1).
• SSAP No. 25 (Transaction with Affiliates) to include implicit and explicit variable interest entities within the example of related parties and expand disclosure requirements to include the maximum loss exposure as a result of explicit or implicit variable interests and reject FIN 46R, FSP FIN 46R-5 and FSP FIN 46R-4
• SSAP No. 22—Leases rejecting FSP FIN 46R-4 as not applicable to statutory accounting
• SSAP No. 54 (Accident and Health) and SSAP No. 55 (Losses) to delete reference to the Health Reserves Guidance Manual
• Issue Paper No. 132—Accounting for Pensions, A Replacement of SSAP No. 89 (also discussed pension survey)
• Issue Paper No. 133—Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14
• Issue Paper No. 131—Accounting for Certain Securities Subsequent to an Other-Than-Temporary Impairment
• Deferred action on a Form A on the use of Audited Tax Basis Financial Statements
• Planned for a conference call during December, 2007 to discuss FIN 48 (Uncertainty in Income Taxes)
• Discussed information received from the ACLI on Life Settlement Contracts
• Directed staff to draft language on EITF 06-5 (Purchases of Life Insurance …Amount That Could be Realized), FAS 156 (Servicing of Financial Assets) and goodwill in a merged subsidiary
• Adopted editorial changes to update the maintenance agenda
• Adopted interim meeting minutes for Nov. 9 call and Nov. 15 e-mail vote
• Received a presentation illustrating a proposed approach to drafting a SSAP on Principle-Based Reserving
• Received an update on activities of the Property and Casualty Reinsurance Study Group

Blanks Working Group:

• Adopted 11 proposals including:
• 2007-41BWG-to modify Schedule P instructions to reference SSAP 65 for guidance on discounting;
• 2007-39BWG-to add instruction to report income received columns net of foreign withholding tax for Schedules D, DA and E;
• 2007-46BWG-to add Actuarial Opinion instructions regarding intercompany pooling arrangements;
• 2007-42BWG & 2007-43BWG-to add instructions for the allocation of premiums by state for Schedule T for the Life, Health and Fraternal blanks and the Property/Casualty blank.
• Exposed five new proposals for comment, the comment period ends Feb. 28, 2008
• Adopted a list of editorial changes
• Received reports from the Investment Schedules Subgroup (which was disbanded), the P&C Lines of Business Subgroup and the Schedule T Subgroup
• Received a summary from the AAA of potential changes to the blanks and instructions due to principles based reserving
• Updated the hybrid securities guidance on the website with an effective date through 1/1/2009
• Announced the Statutory Accounting Principles Working Group made changes to the notes to financial statements for subprime mortgage related risk exposures (SSAP No. 1), and investments in subsidiaries (SSAP No. 97)
• Announced that included in the proposed NAIC 2008 budget is a reverse fiscal impact ending the NAIC’s collection, retention and management of all annual and quarterly statement hard copies and noted that relevant changes to the instructions and blanks would be made as editorial changes if the budget item is adopted
• Reviewed the status of the final 6 states collecting hard copy filings from their foreign companies

Accounting Practices and Procedures Task Force:
After discussion, the Accounting Practices and Procedures Task deferred adoption of 2007-42BWG (Life insurance) from the Blanks Working Group report. This item was deferred and exposed for additional comment, with comments to be submitted to the Accounting Practices and Procedures Task Force to allow for broader regulator discussion about whether to add situs of the contract for consideration in the allocation of premium. Comment deadline for submission of comments to the Accounting Practices and Procedures Task Force is Feb. 28, 2008.  The Blanks Working Group report as revised was adopted.