Statutory Accounting Principles (E) Working Group

Statutory Accounting Principles (E) Working Group
December 2, 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
Final – The Working Group adopted Issue Paper No. 124—Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, An Amendment to SSAP No. 43—Loan-Backed and Structured Securities and directed staff to draft the SSAP.
Ref #2006-09: Accounting for the Gain or Loss on Sale of Real Estate Included in a Leaseback Transaction
Final – Adopted the exposed nonsubstantive changes to SSAP No. 22—Leases as final. The guidance adopted allows immediate gain recognition as special surplus for real estate sale-leaseback transactions settled entirely in cash.
Ref #2006-25: SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88 (SSAP No. 97)
Final – Adopted the exposed SSAP No. 97, including items adopted November 9, 2007, with modifications discussed during the Hearing.
Ref #2007-16: Clarification of SSAP No. 26 for Reporting Investments in Commercial Paper
Final – Adopted nonsubstantive change to SSAP No. 26—Bonds, excluding Loan-backed and Structured Securities to separately reference commercial paper and certificates of deposit clarifying that commercial paper is to be classified as a bond, regardless of the remaining time to maturity on the purchase date.
Ref #2007-17: FAS 129: Disclosure of Information about Capital Structure (FAS 129)
Final – Adopted a nonsubstantive change to SSAP No. 72—Surplus and Quasi-reorganizations to change the reference of adopted paragraphs within FAS 129, Disclosure of Information about Capital Structure.
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)
Final – Adopted a nonsubstantive change to Issue Paper No. 99—Nonapplicable GAAP Pronouncements (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)
Final – Adopted 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)
Final – Adopted nonsubstantive change to Issue Paper No. 99 rejecting SOP 03-2 as not applicable to statutory accounting.
Ref #2007-33: Subprime Mortgage Disclosure
Final – Adopted nonsubstantive changes to SSAP No. 1—Disclosures of Accounting Policies Risks and Uncertainties, and Other Disclosures which require disclosures for the 2007 Annual Statement illustrating exposure related to the subprime mortgage sector.

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

Ref #2007-24: FAS 157: Fair Value Measurements (FAS 157)
Action – Moved item to the Substantive Active Listing and formed a Subgroup to review FAS 157 and other fair value related issues with the charge to oversee and develop a new SSAP that defines fair value and establishes a framework for measurement fair value in statutory accounting. In addition, Interested Parties submitted an agenda admission form (Ref #2007-35: Implementation of FAS 157: Fair Value Measurements disclosure requirements in Statutory Filings for 2008) proposing to adopt interim disclosures for FAS 157. The Working Group referred this item to the newly formed Fair Value Subgroup.
Ref #2007-25: FAS 159: The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159)
Exposed – Item was moved to the Nonsubstantive Active Listing; exposed nonsubstantive change to Issue Paper No. 99 rejecting FAS 159 as not applicable to statutory accounting due to optionality allowed under the GAAP guidance. Referred a project to the Fair Value Subgroup to analyze existing statutory accounting measurement bases to assess the possibility and impact of moving towards a fair value measurement method.
Ref #2007-26: FAS 156: Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (FAS 156)
Action – Item was moved to the Substantive Active Listing; NAIC staff was directed to draft an issue paper revising SSAP No. 91—Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 91) to require subsequent fair value measurement of servicing assets/liabilities at each reporting date and corresponding fair value disclosures, to require separate recognition of servicing assets/liabilities resulting from a transfer of financial assets to a qualifying SPE in a guaranteed mortgage securitizations in which the transferor retains all of the resulting securities, and to incorporate the FAS 156 revised terminology within SSAP No. 91. Staff was directed to draft the issue paper to adopt FAS 156 guidance, with the modification to reject optional accounting for servicing assets/liabilities.
Ref #2007-27: SOP 03-1: Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1)
Action – Moved item to the Substantive Active Listing and formed a Separate Account Subgroup to consider SOP 03-1.
Ref #2007-28: FIN 46R; FSP FIN 46R-4; FSP FIN 46R-5: Variable Interests
Exposed – Moved item to the Nonsubstantive Active Listing and exposed nonsubstantive change to SSAP No. 25—Accounting for and Disclosures about Transaction with Affiliates and Other Related Parties 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. Also exposed nonsubstantive change to SSAP No. 22—Leases rejecting FSP FIN 46R-4 as not applicable to statutory accounting.
Ref #2007-29: FSP SOP 78-9-1: Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5 (FSP SOP 78-9-1)
Exposed – Moved item to the Nonsubstantive Active Listing and exposed a nonsubstantive change to Issue Paper No. 99 rejecting FSP SOP 78-9-1 as not applicable to statutory accounting as the concept of consolidation and the GAAP definition of contract have previously been rejected by statutory accounting.
Ref #2007-30: SOP 03-5: Financial Highlights of Separate Accounts: An amendment to the Audit and Accounting Guidance Audits of Investment Companies (SOP 03-5)
Exposed – Moved item to the Nonsubstantive Active Listing and exposed a nonsubstantive change to Issue Paper No. 99 rejecting SOP 03-5 as not applicable to statutory accounting.
Ref #2007-31: Remove Reference to Health Reserves Guidance Manual
Exposed – Moved item to the Nonsubstantive Active Listing and exposed a nonsubstantive change to SSAP No. 54—Individual and Group Accident and Health Contracts and SSAP No. 55—Unpaid Claims, Losses and Loss Adjustment Expenses to remove reference to the Health Reserves Guidance Manual.
Ref #2007-32: EITF 06-5: Accounting for Purchases of Life Insurance – Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin 85-4 (EITF 06-5)
Action – Moved item to the Nonsubstantive Active listing and directed staff to draft language that is consistent with the EITF for Working Group review.
Ref #2007-34: Use of Audited Tax Basis Financial Statements
Deferred – Interested parties agreed to provide additional language on this issue for the Working Group to review.
Ref #2007-36: Goodwill in a merged subsidiary
Deferred – Moved item to the Nonsubstantive Active Listing and directed staff to draft language for review at the 2008 Spring National Meeting.

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

Review of Maintenance Agenda
Action – Moved Ref #1999-31: FAS 131, Segment Reporting; Ref #1998-33: FAS 134, Accounting for Mortgage-Backed Securities…; Ref #1999-38: SOP 97-1, Accounting by Participating Mortgage Loan Borrowers; Ref #1999-41: SOP 98-2, Accounting for Fund Raising Costs, and Ref #2003-10: EITF 00-23, Issues Related to Accounting for Stock Compensation Under APB No. 25 and FIN 44 to the Substantive Disposed Listing to formally remove these items from the maintenance agenda as there were separate Form A’s on the first four issues and GAAP had issued a new pronouncement superseding the last issue.
Ref #2006-18: FIN 48 – Accounting for Uncertainty in Income Taxes
Update – An updated Form A was submitted by interested parties. A conference call is expected during December, 2007 to discuss the interested parties’ proposal.
Ref #2006-29: FAS 150: Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (FAS 150)
Exposed – Moved item to the Nonsubstantive Active Listing and exposed changes to Issue Paper 99 rejecting FAS 150 as not applicable to statutory accounting as insurers do not readily issue securities or financial instruments within the scope of FAS 150.
Ref #2006-30: FAS 158: Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)
Exposed – Issue Paper No. 132—Accounting for Pensions, A Replacement of SSAP No. 89 and Issue Paper No. 133—Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 were exposed. These issue papers propose adoption with modification of FAS 158.
Ref #2007-14: Accounting for Debt Securities Subsequent to an Other-Than-Temporary Impairment
Exposed – Issue Paper No. 131—Accounting for Certain Securities Subsequent to an Other-Than-Temporary Impairment was exposed, which provides statutory accounting guidance subsequent to an other-than-temporary impairment.
Ref #2007-21: SOP 97-1: Accounting by Participating Mortgage Loan Borrowers (SOP 97-1)
Exposed – Moved item to the Nonsubstantive Active Listing and exposed nonsubstantive revisions to SSAP No. 40—Real Estate Investments to incorporate guidance pertaining to participating mortgage loans.

Next, the Working Group reviewed any other matters:

Discussed information received from the ACLI on FSP FTB 85-4-1: Accounting for Life Settlement Contracts by Third-Party Investors (Ref# 2006-21).
Adopted interim meeting minutes for November 9 call and November 15 e-mail vote.
Received a presentation from Dave Christensen (USAA) illustrating a proposed approach to drafting a SSAP on Principle-Based Reserving.
Received update on activities of the Property and Casualty Reinsurance Study Group.

Comment deadline for issues newly exposed from the MEETING or re-exposed at the HEARING is Feb. 15, 2008. (An extended 55-day comment period is provided.)