SSAP Update What you need to know for 2014

Transcription

1 SSAP Update What you need to know for 2014 Carolina IASA

2 Presenters Brandy Vannoy, CPA Partner Johnson Lambert LLP Scott Hall, CPA Principal Johnson Lambert LLP 2

3 Agenda Statutory Accounting Update for P&C Auditor s Update Tax Update Questions and Answers 3

4 Statutory Accounting Update for P&C Substantive ti Change Non-substantive Changes NAIC Summer Meeting Update Pipeline 4

5 Statutory Update - Substantive Change SSAP No.104R Share-Based Payments What about non-employees? 5

6 Statutory Update - Substantive Change SSAP No.104R Share-Based Payments The NAIC adopted, d with modification, the GAAP guidance as reflected in Accounting Standards Codification Equity Payments to Non-Employees, effective December 31, Modifications: Non-admits any prepaid assets Disallows the minimum value method Requires the midpoint i of range to be used for estimation (compared to low point) 6

7 Statutory Update - Substantive Change SSAP No.105 Working Capital Finance Investments (WCFIs) New SSAP allowing admitted asset treatment if certain conditions are met, effective January 1, WCFIs represent interests in short-term trade receivables that insurers can purchase through a finance agent Admitted assets with accounting similar to short-term investments, if approved by the SVO/NAIC 1or 2 Insurer must submit annual filing to the SVO including audited financials of the finance agent 7

8 Statutory Update- Non-substantive Changes SSAP No. 26 Bonds, Excluding Loan-backed and Structured Securities Effective: January 1, 2014 Make-whole provision bond amortization period Make-whole not considered for premium/discount amortization unless we know issuer is going to call the bond before maturity Continuously callable bond premium amortization period Use first call date if lockout period exists Expense entire premium at acquisition if no lockout Callable bonds Yield to worst used for all callable bonds 8

9 Statutory Update - Non-substantive Changes SSAP No. 86 Accounting for Derivative Instruments, Hedging, g etc. Effective January 1, 2014 Adopts ASU Clarifies what qualifies as a benchmark interest rate (the Fed Funds Effective Swap Rate) for hedge accounting Applies GAAP definition iti of a benchmark interest t rate Deletes prior guidance requiring the same benchmark interest rate for similar hedges 9

10 Statutory Update- Non-substantive Changes SSAP No. 92 Accounting for Postretirement Benefits Other than Pension Effective January 1, 2014 Non-substantive change which adopts ASU , Compensation- Retirement Benefits Multiemployer Plans with limited disclosures Requires additional disclosures 10

11 Statutory Update - Non-substantive Changes SSAP No. 97 Investments in Subsidiary, Controlled and Affiliated Entities Effective January 1, 2014 Modifies Determining the Valuation Method flowchart to reference the accounting for downstream holding companies 11

12 Statutory Update - Non-substantive Changes FHLB reporting and disclosure changes Effective January 1, 2014 Impacts multiple SSAPs SSAP No. 1 Disclosure of Accounting Policies, i Risks & Uncertainties and Other Disclosures SSAP No. 30 Investments in Common Stock (excluding investments in common stock of subsidiary, controlled or affiliated entities SSAP No. 52 Deposit-Type Contracts SSAP No. 15 Debt and Holding Company Obligations 12

13 Statutory Update - NAIC Summer Meeting 13

14 Auditor s Update Using Internal Audit Application of Independence Rules to Affiliates Non-attest Services 14

15 Auditor s Update - Using Internal Audit Management takeaways from SAS 128: If you have internal auditors, talk to your external auditors about efficiencies Don t be surprised if external auditor: Asks internal audit different questions than in previous years Documents use of internal audit in engagement letter Asks internal audit to sign a representation letter 15

16 Auditor s Update - Affiliate Independence Rules Management takeaways: Help l your auditors remain independent d Be prepared to provide detailed documentation of all affiliates 16

17 Auditor s Update - Non-attest Services Management takeaways: Management s responsibilities What non-attest provider can/can t do 17

18 Tax Update Valuation Allowance and UTP SSAP 101 Common Pitfalls Recent Tax Cases New/Proposed Laws 18

19 Valuation Allowance and UTP When do you need a Valuation Allowance (VA)? More likely than not (MLTN) that some portion of the DTA will not be realized in the future MLTN = >50% Must consider VA before the admissibility test Gross deferred tax asset VA = Adjusted gross deferred tax asset 19

20 Valuation Allowance and UTP Sources of taxable income that can be used to support a conclusion that a DTA will be realized include: reversals of existing DTLs; carryback capacity under the tax law; projections of future taxable income; income from tax planning strategies 20

21 Valuation Allowance and UTP Uncertain tax position consideration is required under SSAP 101 More likely than not threshold like GAAP SAP only filers have different disclosure and reporting than GAAP 21

22 SSAP 101 Common Mistakes Carryback periods under 11a Life vs P&C Maintain separate year analysis Keep reversal patterns updated Taxable Income forecasts need to be realistic Update p taxable income available from PYs due to any carrybacks 22

23 Tax Sharing Agreements Three Basic Reasons for the agreements: I. Earnings and profits II. Stock Basis III. To determine how to split the actual liability among entities 23

24 Recent Tax Cases of Interest Acuity Mutual Insurance Co. v. Commissioner, TC Memo Tax Court ruled in favor of taxpayer Acuity supplied substantial ti evidence to support position and IRS did not Again, i looked to NAIC approved annual statement for starting point 24

25 Recent Tax Cases of Interest Acuity Mutual Insurance Co. v. Commissioner, TC Memo Take-away: Memorandum decision but reinforces the court s reliance on documentation to support position that loss reserves are fair and reasonable and makes it more difficult for the IRS to argue otherwise 25

26 Recent Tax Cases of Interest State Farm v. Commissioner, No Seventh Circuit in US Court of Appeals did not allow bad-faith damage award that was punitive as part of loss reserves Portion of award related to compensatory was included in loss reserves Court largely followed the NAIC guidance 26

27 New Tax Laws Tangible Property Regs Final regulations issued September 2013 Effective January 1, 2014 Early adopt for 2012 and 2013 Goal was to simplify and provide more guidance 27

28 New Tax Laws Tangible Property Regs Main Focus Materials and Supplies ( ) 162 Repairs and Maintenance ( ) Capital Expenditures (1.263(a)-1) Amounts paid for the acquisition or production of tangible property (1.263(a)-2) Amounts paid for the improvement e of tangible property (1.263(a)-3) 28

29 New Tax Laws Tangible Property Regs De Minimis Capitalization Safe harbor at the invoice or item level $5,000 per invoice or item, if applicable financial statement $500 per invoice or item, if no applicable financial statement 29

30 New Tax Laws Tangible Property Regs Transition IRS expects that nearly all companies will have a change in their accounting method Transition guidance was issued in early 2014 in Revenue Procedure and How to apply the regulations for years prior to 2014 Change of accounting procedures 30

31 New Tax Laws Camp Tax Reform Proposal Reduce top corporate tax rate to 25% Repeal AMT and revise NOL rules Eliminates exclusion of performance-based compensation from 162(m) Life reserves increase in discount rate to compute tax reserves Non-life reserves increase in rate, loss payment pattern lengthening, no company election 31

32 New Tax Laws Camp Tax Reform Proposal Continued Increase in DAC percentages Change in proration rules Removes benefits for small life and non-life insurers Limits COLI interest expense exception to 20% owners for new contracts Repeal of

33 Brandy Vannoy, CPA Partner Johnson Lambert Scott Hall, CPA Principal Johnson Lambert