Emerging Accounting Issues (E) Working Group Agenda Submission Form Form B

Transcription

1 Emerging Accounting Issues (E) Working Group Agenda Submission Form Form B Issue: Reference INTs Within Applicable SSAPs Attachment B Reference INTs in SSAPs Description of Transaction/Event/Issue: During the 2013 Spring National Meeting the Emerging Accounting Issues Working Group directed staff to proceed with a project that would reference the remaining INTs within the applicable SSAPs. This enhancement is proposed to direct users of the Accounting Practices and Procedures Manual to additional authoritative guidance reflected in the INTs in a more visual manner, when applicable. Accounting Issues: No proposed changes to existing authoritative guidance. Authoritative Literature (excerpt applicable references): Various See detail in. Activity to Date (issues previously addressed by Statutory Accounting Principles WG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): Previously, the Emerging Accounting Issues (E) Working Group and the Statutory Accounting Principles (E) Working Group undertook a project that consolidated authoritative guidance within the SSAPs, and nullified some INTs. NAIC Staff Recommendation: It is staff s recommendation that the Emerging Accounting Issues Working Group expose the proposed revisions to reference applicable interpretations within the text of the SSAP, as illustrated in the agenda item. (In addition to referencing INTs in SSAPs, there are a few additional proposed revisions to remove references between INTs/SSAPs when the INT guidance does not interpret the SSAP and clarify guidance.) As an additional item, Staff has identified that superseded/nullified SSAPs continue to be referenced on the face of the INTs with shading to identify SSAPs that have been nullified/superseded. With an exposure to reference INTs within the SSAPs as recommended in this agenda item, staff suggests that the Working Group request comments or concerns if the INTs are revised to only reflect the authoritative guidance to which they pertain (deletion of references from nullified/superseded SSAPs.) Staff notes that the nullified/superseded SSAPs do not have INT references deleted, so a historical record would still exist. Proposed revisions for this inquiry are not reflected, but the following highlights the shading that currently exists. The inquiry is asking for comments if the SSAP No. 91R reference below was removed: INT 09-08: SSAP No. 64 Offsetting and Netting of Assets and Liabilities SSAP No. 91R Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Revised SSAP No. 103 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 103) NAIC Staff Review Completed by: Linda Hunsucker April National Association of Insurance Commissioners 1

2 Reference INTs in SSAPs Status: On August 24, 2013, the Statutory Accounting Principles (E) Working Group exposed this agenda item proposing revisions to reference interpretations (INTs) within applicable Statements of Statutory Accounting Principles (SSAPs). The exposed revisions intend to direct SSAP readers to the authoritative INT guidance in a more visual manner. The exposed revisions also recommend changes to update SSAP references included within the INTs in order to limit references to situations in which the INT provides a related and current interpretation. G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2013\Summer 2013\Emerging\Form B INT references in SSAPs.docx 2013 National Association of Insurance Commissioners 2

3 INT Name SSAPs Where Referenced INT Illustration of the Accounting/Reporting of Deposit-Type 51, 52, 56 Contracts in Accordance with SSAPs No. 51, 52 and 56 INT Application of SEC SAB No. 99, Materiality to the Preamble Preamble of the AP&P Manual INT EITF 98-13: Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee and EITF 99-10: Percentage Used to Determine the Amount of Equity Method Losses 97 This INT is already referenced in Footnote 1 of SSAP No. 97, so no changes are proposed. INT INT INT EITF 98-3: Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business EITF 99-12: Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination EITF 00-8: Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services No recommended changes as INT is proposed to be nullified under Issue Paper No. 146 INT Consolidated or Legal Entity Level Limitations on EDP 16R, 19, 68, 101 Equipment, Goodwill and Deferred Tax Assets Admissibility INT Accounting for U.S. Treasury Inflation-Indexed Securities 26 INT Assets Pledged as Collateral 4, 5R, 103 Proposed revisions suggest removing reference to SSAP No. 5R from this INT. INT Accounting for the U.S. Terrorism Risk Insurance Program 35R, 62R, 63 Proposed revisions suggest removing reference to SSAP No. 63 from this INT. INT INT INT INT Modification to an Existing Intercompany Pooling Arrangement EITF 02-4: Determining Whether a Debtor s Modification or Exchange of Debt Instruments is within the Scope of FASB Statement No. 15 Impact of Medicare Modernization Act on Postretirement Benefits EITF 02-09: Accounting for Changes that Result in a Transferor Regaining Control of Financial Assets Sold 61R, 62R, As this INT simply adopts EITF 02-4, this INT is proposed to be nullified, with adoption reference in SSAP No , 92, 101 Proposed revisions suggest removing reference to SSAP No. 3 and SSAP No. 101 from this INT National Association of Insurance Commissioners 3

4 INT Accounting for Revenues Under Medicare Part D Coverage 47, 54, 66, 84 Attachment B No recommended changes as INT is already reference in the SSAPs INT Accounting and Reporting for Investments in a Certified Capital Company (CAPCO) 26, 30, 32, 34, 37, 48, 49 Proposed revisions suggest removing reference to SSAP No. 34, SSAP No. 37 and SSAP No. 49 from this INT. INT Definition of Phrase Other Than Temporary 26, 30, 32, 37, 39, 43R, 48, 68, 93, 97 In addition to referencing the INT in these SSAPs, the proposed revisions include adding the phrase otherthan-temporary to SSAP No. 93. INT Tax Deposits Submitted in Accordance with Section 6603 of 101 the Internal Revenue Service (IRS) Code INT EITF 01-2: Interpretations of APB Opinion No , 95, INT References between INT and INT are proposed to be deleted. INT Application of the Scientific (constant yield) Method in 26, 43R Situations of Reverse Amortization INT EITF 02-11: Accounting for Reverse Spinoffs 24, 95 As noted in INT 06-13, References between INT and INT are proposed to be deleted. INT Accounting for Loans Received under the Federal TALF Program 64, National Association of Insurance Commissioners 4

5 2013 National Association of Insurance Commissioners 5 Attachment B INT 00-03: Illustration of the Accounting/Reporting of Deposit-Type Contracts in Accordance with SSAPs No. 51, 52 and 56 Proposed changes to SSAP No. 51: 13. Considerations for supplementary contracts, dividends left on deposit to accumulate interest, and amounts deposited and accumulated for guaranteed interest and group annuity contracts shall be recognized as deposit-type funds or considerations for supplemental contracts, as appropriate. These amounts are further discussed in SSAP No. 52 Deposit-Type Contracts. (INT 00-03) Proposed changes to SSAP No. 52: 6. Contracts issued by a reporting entity that do not incorporate mortality or morbidity risk shall not be accounted for as insurance contracts. Amounts received as payments for such contracts shall not be reported as revenues but shall be recorded directly to an appropriate policy (INT 00-03) reserve account. Proposed changes to SSAP No. 56: 5. For those separate account contracts classified as life contracts under SSAP No. 50 Classification and Definitions of Insurance or Managed Care Contracts In Force, premiums and annuity considerations shall be recorded as income in the Summary of Operations of the general account, and as transfers to premiums and considerations in the separate account statement. Deposit-type contracts shall be recorded in the general account in accordance with SSAP No. (INT 00-03) 52 Deposit-Type Contracts. Charges (e.g., fees associated with investment management, administration, and contract guarantees) assessed on the separate accounts, as well as the net gain from operations of the separate account, shall be recorded as income in the Summary of Operations of the general account. Expenses relating to investment management, administration, and contract guarantees pertaining to separate account operations, as well as benefits and surrenders incurred on behalf of separate account contracts classified as life contracts, net transfers between separate accounts, commissions, and premium taxes (if any) shall be recorded as expenses in the Summary of Operations of the general account. INT 00-20:Application of SEC SAB No. 99, Materiality to the Preamble of the AP&P Manual Proposed changes to Preamble: (INT 00-20) 49. The provisions of this Manual need not be applied to immaterial items. INT 00-24: EITF 98-13: Accounting by an Equity Method Investor For Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee and EITF 99-10: Percentage Used to Determine the Amount of Equity Method Losses Proposed changes to SSAP No. 97: INT is already referenced in footnote to paragraph 13e, however, changes are proposed to reflect the full title of INT 00-24: (bolded for emphasis) 13e. For entities subject to 8.b.i., 8.b.iii. and 8.b.iv. a reporting entity s share of losses of an investee may equal or exceed the carrying amount of an investment accounted for by an equity method plus advances made by the investor. The reporting entity shall discontinue applying an equity method when the investment (including advances) is reduced to zero 1 and shall not provide for additional losses unless the reporting entity has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee (guaranteed obligations meeting the definition of liabilities in SSAP No. 5R Liabilities, Contingencies and Impairments of Assets shall be recorded as liabilities). If the investee subsequently reports net income, the reporting entity shall resume applying an equity method only after its share of that net income equals the share of net losses not recognized during the period that an equity method was suspended;

6 Footnote 1: Refer to the additional guidance related to discontinuance of an equity method in paragraphs and INT 00-24: EITF 98-13: Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee and EITF 99-10: Percentage Used to Determine the Amount of Equity Method Losses INT 00-26: EITF 98-3: Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business Proposed changes to SSAP No. 95: No changes proposed as INT is already referenced in paragraph 4: (bolded for emphasis) 4. Nonmonetary transactions shall be accounted for in accordance with this statement, except as addressed by other statements or interpretations including but not limited to SSAP No. 12 Employee Stock Ownership Plans (SSAP No. 12), SSAP No. 25 Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties (SSAP No. 25), SSAP No. 68 Business Combinations and Goodwill (SSAP No. 68), SSAP No. 72 Surplus and Quasi- Reorganizations (SSAP No. 72), SSAP No. 103 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 103), SSAP No. 104 Share- Based Payments (SSAP No. 104), and INT 00-26: EITF 98-3: Determining Whether a Nonmonetary Transactions Involves Receipt of Productive Assets or of a Business (INT 00-26). INT 00-28: EITF 99-12: Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination Proposed changes to SSAP No. 68: Statutory Purchases of SCA Investments 3. The statutory purchase method of accounting is defined as accounting for a business combination as the acquisition of one entity by another. It shall be used for all purchases of SCA entities including partnerships, joint ventures, and limited liability companies. The acquiring reporting entity shall record its investment at cost. Cost is defined as the sum of: (a) any cash payment, (b) the fair value of other assets distributed, (c) the fair value of any liabilities assumed, and (d) any direct costs of the acquisition. (INT 00-28) Contingent consideration issued in a purchase business combination that is embedded in a security or that is in the form of a separate financial instrument shall be recorded by the issuer at fair value at the acquisition date. INT 00-32: EITF 00-8: Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services No recommended changes as INT is proposed to be nullified under Issue Paper No. 146 Share Based Payments with Non-Employees. INT 01-18: Consolidated or Legal Entity Level Limitations on EDP Equipment, Goodwill and Deferred Tax Assets Admissibility Proposed changes to SSAP No. 16R: 4. The aggregate amount of admitted EDP equipment and operating system software (net of accumulated depreciation) shall be limited to three percent of the reporting entity s capital and surplus as required to be shown on the statutory balance sheet of the reporting entity for its most recently filed statement with the domiciliary state commissioner adjusted to exclude any EDP (INT 01- equipment and operating system software, net deferred tax assets and net positive goodwill 18)) National Association of Insurance Commissioners 6

7 Proposed changes to SSAP No. 19: 2. Furniture, fixtures and equipment generally meet the definition of assets established in SSAP No. 4 Assets and Nonadmitted Assets (SSAP No. 4). Such items also meet the criteria defining nonadmitted assets in SSAP No. 4. Accordingly, these assets shall be depreciated against net income as the estimated economic benefit expires and the undepreciated portion of (INT 01-18) these assets shall be reported as nonadmitted assets and charged against surplus. Proposed changes to SSAP No. 68: 7. Positive goodwill recorded under the statutory purchase method of accounting shall be admitted subject to the following limitation: Positive goodwill from all sources, including life, accident and health, and deposit-type assumption reinsurance, is limited in the aggregate to 10% of the acquiring entity s capital and surplusas required to be shown on the statutory balance sheet of the reporting entity for its most recently filed statement with the domiciliary state commissioner adjusted to exclude any net positive goodwill, EDP equipment and operating system software, and net deferred tax assets. When negative goodwill exists, it shall be recorded as a contraasset. Positive or negative goodwill resulting from the purchase of an SCA, joint venture, partnership or limited liability company shall be amortized to unrealized capital gains and losses on investments over the period in which the acquiring entity benefits economically, not to exceed 10 years. Positive or negative goodwill resulting from life, accident and health, and deposit-type assumption reinsurance shall be amortized to operations as a component of general insurance expenses over the period in which the assuming entity benefits economically, not to exceed 10 years. Goodwill shall be evaluated separately for each transaction (INT 01-18). Proposed changes to SSAP No. 101: 11b.ii. An amount that is no greater than the applicable percentage (refer to the 11.b.ii. column of the applicable Realization Threshold Limitation Table above: the RBC Reporting Entity Table, the Financial Guaranty or Mortgage Guaranty Non-RBC Reporting Entity Table, or the Other Non- RBC Reporting Entity Table) of statutory capital and surplus as required to be shown on the statutory balance sheet of the reporting entity for the current reporting period s statement filed with the domiciliary state commissioner adjusted to exclude any net DTAs, EDP equipment and operating system software and any net positive goodwill (INT 01-18). INT 01-25: Accounting for U.S. Treasury Inflation-Indexed Securities Proposed changes to SSAP No. 26: 2. Bonds shall be defined as any securities representing a creditor relationship, whereby there is a fixed schedule for one or more future payments. This definition includes: a. U.S. Treasury securities (INT 01-25), b. U.S. government agency securities, c. Municipal securities, d. Corporate bonds, e. Bank participations, f. Convertible debt, g. Certificates of deposit that have a fixed schedule of payments and a maturity date in excess of one year from the date of acquisition, h. Commercial Paper, i. Exchange Traded Funds, which qualify for bond treatment, as identified in the Purposes and Procedures Manual of the NAIC Securities Valuation Office, and j. Class 1 Bond Mutual Funds, as identified in the Purposes and Procedures Manual of the NAIC Securities Valuation Office. INT 01-31: Assets Pledged as Collateral Proposed changes to SSAP No. 4: 2013 National Association of Insurance Commissioners 7

8 2. For purposes of statutory accounting, an asset shall be defined as: probable 1 future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. An asset has three essential characteristics: (a) it embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows, (b) a particular entity can obtain the benefit and control others access to it 2, and (c) the transaction or other event giving rise to the entity s right to or control of the benefit has already occurred. These assets shall then be evaluated to determine whether they are admitted. The criteria used is outlined in paragraph 3. 2 If assets of an insurance entity are pledged or otherwise restricted by the action of a related party, the assets are not under the exclusive control of the insurance entity and are not available to satisfy policyholder obligations due to these encumbrances or other third party interests. Thus, pursuant to paragraph 2(c), such assets shall not be recognized as an admitted asset on the balance sheet. Additional guidance for assets pledged as collateral is included in INT Proposed changes to SSAP No. 5R: INT currently references SSAP No. 5R. However, the guidance in INT does not interpret SSAP No. 5R, but INT simply identifies that it is assumed the asset would not be considered impaired under SSAP No. 5R. It is proposed to delete reference to SSAP No. 5R in both INT and in SSAP No. 5R: SSAP No. 5R: Type of Issue: Common Area Issued: Initial Draft, Substantively Revised October 18, 2010 Effective Date: January 1, 2001, Substantive revisions December 31, 2011 Affects: Nullifies and incorporates INT 04-05, INT Affected by: No other pronouncements Interpreted by: INT No other pronouncements INT References SSAP No. 4 Assets and Nonadmitted Assets (SSAP No. 4) SSAP No. 5R Liabilities, Contingencies and Impairment of Assets (SSAP No. 5R) SSAP No. 18 Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 18) SSAP No. 33 Securitization (SSAP No. 33) SSAP No. 45 Repurchase Agreements, Reverse Repurchase Agreements and Dollar Repurchase Agreements (SSAP No. 45) SSAP No. 91R Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 91R) SSAP No. 103 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SSAP No. 103) INT 99-02: Accounting for Collateral in Excess of Debt Principal (INT 99-02) Proposed changes to SSAP No. 103: 20. Reporting entities may enter into certain transactions that require the granting of a security interest in certain assets to another party to serve as collateral for their performance under a contract. If the assets pledged are recorded as admitted assets under SSAP No. 4 Assets and Nonadmitted Assets (SSAP No. 4) and INT 01-31: Assets Pledged as Collateral (INT 01-31) and are not impaired under the provisions of SSAP No. 5 Liabilities, Contingencies and Impairments of Assets Revised (SSAP No. 5R), the pledging entity records the collateral as an admitted asset until committing a contract default that has not been cured in accordance with the contract provisions. At the time of an uncured default, the provisions of paragraph 19 shall be used to determine the appropriate accounting treatment for the collateral. If the secured party utilizes collateral to offset all or a portion of the liability owed by the pledging entity as a result of the default, then the collateral amount utilized to offset the liability shall be removed from the 2013 National Association of Insurance Commissioners 8

9 balance sheet. At the same time, the amount of the liability that was offset shall be removed from the balance sheet since that obligation has been satisfied through the secured party s utilization of that collateral. To the extent that an uncured default remains without the secured party utilizing the collateral to offset the obligation, the pledging insurer shall only record an admitted asset for the amount of collateral that it can redeem. INT 02-22: Accounting for the U.S. Terrorism Risk Insurance Program Proposed changes to SSAP No. 35R: 12. In certain circumstances, a reporting entity acts as an agent for certain state or federal agencies in the collection and remittance of fees or assessments. In these circumstances, the liability for the fees and assessments rests with the policyholder rather than with the reporting entity. The reporting entity s obligation is to collect and subsequently remit the fee or assessment (INT 02-22). When both the following conditions are met, an assessment shall not be reported in the statement of operations of a reporting entity: a. The assessment is reflected as a separately identifiable item on the billing to the policyholder; and b. Remittance of the assessment by the reporting entity to the state or federal agency is contingent upon collection from the insured. Proposed changes to SSAP No. 62R: 10. The essential ingredient of a reinsurance contract is the transfer of risk. The essential element of every true reinsurance agreement is the undertaking by the reinsurer to indemnify the ceding entity, i.e., reinsured entity, not only in form but in fact, against loss or liability by reason of the original insurance. Unless the agreement contains this essential element of risk transfer, no credit shall be recorded (INT 02-22).. INT currently references SSAP No. 63. However, the guidance in INT does not appear to interpret SSAP No. 63. It is proposed to delete reference to SSAP No. 63 in both INT and in SSAP No. 63: Proposed Changes to SSAP No. 63: Type of Issue: Common Area Issued: Initial Draft Effective Date: January 1, 2001 Affects: No other pronouncements Affected by: No other pronouncements Interpreted by: INT 02-22, INT Proposed Changes to INT 02-22: SSAP No. 35R Guaranty Fund and Other Assessments (SSAP No. 35R) SSAP No. 62R Property and Casualty Reinsurance (SSAP No. 62R) SSAP No. 63 Underwriting Pools and Associations Including Intercompany Pools (SSAP No. 63) INT 03-02: Modification to an Existing Intercompany Pooling Arrangement Proposed changes to SSAP No. 61R: 4. Fronting arrangements, pools and association business are often accomplished using reinsurance contracts (INT 03-02). The guidance included in this statement also applies to these types of contracts except as specifically exempted National Association of Insurance Commissioners 9

10 Proposed changes to SSAP No. 62R: 19. Accounting for members of a reinsurance pool shall follow the accounting for the pool member which issued the underlying policy (INT 03-02). Specific accounting rules for underwriting pools and associations are addressed in SSAP No. 63 Underwriting Pools and Associations Including Intercompany Pools (SSAP No. 63). Proposed changes to SSAP No. 63: 5. Intercompany pooling relates to business which is pooled among affiliated entities who (INT 03-02). are party to a pooling arrangement INT 03-12: EITF 02-4: Determining Whether a Debtor s Modification or Exchange of Debt Instruments is within the Scope of FASB Statement No. 15 Proposed changes to SSAP No. 36 recommend nullification of INT and including reference of the adoption in SSAP No. 36 consistent with other EITFs: 28. This statement adopts FASB Technical Bulletin 81-6, Applicability of Statement 15 to Debtors in Bankruptcy Situations and FASB Technical Bulletin 80-2, Classification of Debt Restructuring by Debtors and Creditors. It also adopts FASB Emerging Issue Task Force No , Use of Zero Coupon Bonds in a Troubled Debt Restructuring, FASB Emerging Issue Task Force No , Substituted Debtors in a Troubled Debt Restructuring, FASB Emerging Issue Task Force No , Accounting for a Modification of Debt Terms When the Debtor is Experiencing Financial Difficulties consistent with the modifications to FAS 15 discussed in this statement, and FASB Emerging Issues Task Force No , Applicability of the Disclosures Required by FASB Statement No. 114 When a Loan Is Restructured in a Troubled Debt Restructuring into Two (or More) Loans and FASB EITF 02-4: Determining Whether a Debtor s Modification or Exchange of Debt Instruments is Within the Scope of FASB Statement No. 15. INT 04-17: Impact of Medicare Modernization Act on Postretirement Benefits Proposed changes to SSAP No. 3 and SSAP No. 101: INT currently references SSAP No. 3; however, the guidance in INT simply directs that changes from adoption of the interpretation shall be accounted for as a change in accounting principle under SSAP No. 3, and does not appear to interpret SSAP No. 3. A similar situation exists for the reference to SSAP No. 101, as the INT notes that income taxes shall be accounted for under that standard, but does not provide an interpretation of SSAP No As such, it is proposed to delete these references from INT 04-17, SSAP No. 3 and SSAP No. 101: Proposed Changes to INT 04-17: SSAP No. 3 Accounting Changes and Corrections of Errors (SSAP No. 3) SSAP No. 10R Income Taxes (SSAP No. 10R) SSAP No. 14 Postretirement Benefits Other Than Pensions (SSAP No. 14) SSAP No. 89 Accounting for Pensions, A Replacement of SSAP No. 8 (SSAP No. 89) SSAP No. 92 Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 (SSAP No. 92) SSAP No. 101 Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (SSAP No. 101) SSAP No. 3: Type of Issue: Common Area Issued: Initial Draft Effective Date: January 1, National Association of Insurance Commissioners 10

11 Affects: Nullifies and incorporates INT and INT Affected by: No other pronouncements Interpreted by: INT 99-00, INT 04-17, INT Proposed Changes to SSAP No. 101: Type of Issue: Common Area Issued: August 31, 2011 Effective Date: January 1, 2012 Affects: Supersedes SSAP No. 10R and SSAP No. 10 Nullifies INT 00-21, INT 00-22, INT 01-19, INT Affected by: No other pronouncements Interpreted by: INT 99-00, INT 01-18, INT 04-17, INT Proposed changes to SSAP No. 92: 22. In principle, an employer's share of the expected future postretirement health care cost for a plan participant is developed by reducing the assumed per capita claims cost at each age at which the plan participant is expected to receive benefits under the plan by (a) the effects of coverage by Medicare (INT 04-17) and other providers of health care benefits, and (b) the effects of the cost-sharing provisions of the plan (deductibles, copayment provisions, out-of-pocket limitations, caps on the limits of the employer-provided payments, and retiree contributions). The resulting amount represents the assumed net incurred claims cost at each age at which the plan participant is expected to receive benefits under the plan. If contributions are required to be paid by active plan participants toward their postretirement health care benefits, the actuarial present value of the plan participants' future contributions reduces the actuarial present value of the aggregate assumed net incurred claims costs. INT 04-21: EITF 02-09: Accounting for Changes that Result in a Transferor Regaining Control of Financial Assets Sold Proposed change to SSAP No. 103 is to add title of INT as reference is already included: Changes That Result in the Transferor s Regaining Control of Financial Assets Sold 59. A change in law or other circumstance may result in a transferred portion of an entire financial asset no longer meeting the conditions of a participating interest (paragraph 7) or the transferor s regaining control of transferred financial assets after a transfer that was previously accounted for as a sale, because one or more of the conditions in paragraph 8 are no longer met. Such changes, unless they arise solely from the initial application of this statement or from a change in market prices (for example, an increase in price that moves into-the-money a freestanding call on a non-readily-obtainable transferred financial asset that was originally sufficiently out-of-the-money that it was judged not to constrain the transferee), are accounted for in the same manner as a purchase of the transferred financial assets from the former transferee(s) in exchange for liabilities assumed (paragraph 9 or 11). (This re-purchase premise is consistent with INT EITF 02-09: Accounting for Changes that Result in a Transferor Regaining Control of Financial Assets Sold.) After that change, the transferor recognizes in its financial statements those transferred financial assets together with liabilities to the former transferee(s) or beneficial interest holders of the former transferee(s). The transferor initially measures those transferred financial assets and liabilities at fair value on the date of the change, as if the transferor purchased the transferred financial assets and assumed the liabilities on that date. The former transferee would derecognize the transferred financial assets on that date, as if it had sold the transferred financial assets in exchange for a receivable from the transferor National Association of Insurance Commissioners 11

12 INT 05-05: Accounting for Revenues Under Medicare Part D Coverage No proposed changes to SSAP No. 47 as reference already included: (bolded for emphasis) 9. Specific funds received as reimbursements (or advance payments) for uninsured claims under a partially uninsured plan, including but not limited to the Medicare Part D program should be accounted for per this Statement. These funds include Reinsurance Payments and Low Income Subsidy (cost-sharing portion). These funds are paid by the Government for a portion of claims above the out-of-pocket threshold or relate to PDP payments for all or a portion of the deductible, the coinsurance and the co-payment amounts for low-income beneficiaries. Refer to INT 05-05: Accounting for Revenues Under Medicare Part D Coverage for additional information and definitions of terms specifically related to Medicare Part D business. No proposed changes to SSAP No. 54 as reference already included: (bolded for emphasis) 8. Specific funds to be received under the Medicare Part D program received as premiums for coverage that is not retrospectively rated should be accounted for under this Statement. These funds include Beneficiary Premium (supplemental benefit portion), as these payments are considered to be standard premium payments that do not meet the definitions under SSAP No. 47 or SSAP No. 66. Refer to INT 05-05: Accounting for Revenues Under Medicare Part D Coverage for additional information and definitions of terms specifically related to Medicare Part D business. No proposed changes to SSAP No. 66 as reference already included: (bolded for emphasis) 6. Specific funds received by the PDP Sponsor from either the Medicare Part D enrollee or the government as payment for Standard Coverage that will be subject to retrospective premium adjustments should be accounted for under SSAP No. 66. These funds include Direct Subsidy, Low Income Subsidy (premium portion), Beneficiary Premium (standard coverage portion), Part D Payment Demonstration and Risk Corridor Payment Adjustment. The funds noted above have a final policy amount that is calculated based on the loss experience of the insured during the term of the policy, therefore should be treated as such. Refer to INT 05-05: Accounting for Revenues Under Medicare Part D Coverage for additional information and definitions of terms specifically related to Medicare Part D business. No proposed changes to SSAP No. 84 as reference already included: (bolded for emphasis) 23. Amounts receivable under government insured plans, including amounts over 90 days due, that qualify as accident and health contracts in accordance with SSAP No. 50 Classifications and Definitions of Insurance or Managed Care Contracts in Force shall be admitted assets. Amounts receivable under government insured plans include but are not limited to receivables under Medicare, Medicaid and similarly funded government insured plans. Evaluation of the collectibility of amounts receivable under government insured plans shall be made periodically. If in accordance with SSAP No. 5R, it is probable the balance is uncollectible, any uncollectible receivable shall be written off and charged to income in the period the determination is made. The collectibility and any nonadmission of amounts receivable from the government insured or uninsured plans are addressed here and in SSAP No. 47, paragraph 10.c. Refer to INT 05-05: Accounting for Revenues Under Medicare Part D Coverage for additional information and definitions of terms specifically related to Medicare Part D business. INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO) Proposed changes to SSAP No. 26: 2. Bonds shall be defined as any securities representing a creditor relationship, whereby there is a fixed schedule for one or more future payments. This definition includes: 2013 National Association of Insurance Commissioners 12

13 a. U.S. Treasury securities, b. U.S. government agency securities, c. Municipal securities, d. Corporate bonds, e. Bank participations, f. Convertible debt, g. Certificates of deposit that have a fixed schedule of payments and a maturity date in excess of one year from the date of acquisition, h. Commercial Paper, i. Exchange Traded Funds, which qualify for bond treatment, as identified in the Purposes and Procedures Manual of the NAIC Securities Valuation Office, and j. Class 1 Bond Mutual Funds, as identified in the Purposes and Procedures Manual of the NAIC Securities Valuation Office. Loan-backed and structured securities meet this definition, but are excluded from the scope of this statement, and are addressed in SSAP No. 43R Loan-Backed and Structured Securities. Securities which meet the definition above, but have a maturity date of one year or less from the date of acquisition are addressed in SSAP No. 2 Cash, Drafts, and Short-term Investments. Mortgage loans and other real estate lending activities made in the ordinary course of business meet the definition above, but are not addressed in this statement. These types of transactions are addressed in SSAP No. 37 Mortgage Loans and SSAP No. 39 Reverse Mortgages. Investments in a debt instrument of a certified capital company (CAPCO) shall be reported as a bond in accordance with INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO). Proposed changes to SSAP No. 30: 3. Common stocks (excluding investments in affiliates) are securities which represent a residual ownership in a corporation and shall include: a. Publicly traded common stocks; b. Master limited partnerships trading as common stock and American deposit receipts only if the security is traded on the New York, American, or NASDAQ exchanges; c. Publicly traded common stock warrants; d. Shares of mutual funds, except for certain money market funds, Class 1 Bond Funds, and Exchange Traded Funds, which qualify for bond treatment, as designated in the Purposes and Procedures Manual of the NAIC Securities Valuation Office, regardless of the types or mix of securities owned by the fund, e.g., bonds, stocks, money market instruments, or other type of investments; e. Common stocks that are not publicly traded, including equity interests in certified capital companies in accordance with INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO); and f. Common stocks that are restricted as to transfer of ownership. Restricted stock shall be defined as a security for which sale is restricted by governmental or contractual requirement (other than in connection with being pledged as collateral), except where that requirement terminates within one year or if the holder has the power by contract or otherwise to cause the requirement to be met within one year. Any portion of the security that can be reasonably expected to qualify for sale within one year is not considered restricted National Association of Insurance Commissioners 13

14 Proposed changes to SSAP No. 32: 2. Investments in preferred stock of subsidiaries, controlled or affiliated entities, including preferred stock interests of certified capital companies (CAPCO) per INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO) are included within the scope of this statement. Proposed changes to SSAP No. 48: 1. This statement establishes statutory accounting principles for investments in any joint ventures, partnerships, and limited liability companies, including investments in certified capital companies (CAPCO) per INT 06-02: Accounting and Reporting for Investments in a Certified Capital Company (CAPCO), whether or not it is considered to be controlled by or affiliated with the reporting entity. This statement does not address the accounting for investments in partnerships and limited liability companies that invest in Low Income Housing Tax Credit Properties as discussed in SSAP No. 93 Accounting for Low Income Housing Tax Credit Property Investments (SSAP No. 93). However, investments in certain state Low Income Housing Tax Credit Property Investments that do not fall within the scope of SSAP No. 93 are covered by the requirements of this statement. Proposed changes to SSAP No. 34, 37 & SSAP No. 49: INT currently references SSAP No. 34, SSAP No. 37 and SSAP No. 49; however, the guidance prescribed in the INT simply indicates that it is consistent with these SSAPs. As the guidance does not appear to interpret these SSAPs, it is proposed to delete these references from INT 06-02, SSAP No. 34, SSAP No. 37 and SSAP No. 49: Proposed Changes to INT 06-02: SSAP No. 26 Bonds, excluding Loan-backed and Structured Securities (SSAP No. 26) SSAP No. 30 Investments in Common Stock (excluding investments in common stock of subsidiary, controlled, or affiliated entities) (SSAP No. 30) SSAP No. 32 Investments in Preferred Stock (including investments in preferred stock of subsidiary, controlled, or affiliated entities) (SSAP No. 32) SSAP No. 34 Investment Income Due and Accrued (SSAP No. 34) SSAP No. 37 Mortgage Loans (SSAP No. 37) SSAP No. 48 Joint Ventures, Partnerships and Limited Liability Companies (SSAP No. 48) SSAP No. 49 Policy Loans (SSAP No. 49) Proposed Changes to SSAP No. 34: Type of Issue: Common Area Issued: Initial Draft Effective Date: January 1, 2001 Affects: 2013 National Association of Insurance Commissioners 14 Superseded SSAP No. 99 with guidance incorporated into this SSAP, November 2010 Affected by: No other pronouncements; see paragraph 10 Interpreted by: No other pronouncementsint Proposed Changes to SSAP No. 37: Type of Issue: Common Area Issued: Initial Draft Effective Date: January 1, 2001 Affects: Nullifies and incorporates INT Affected by: No other pronouncements Interpreted by: INT 06-02, INT 06-07

15 Proposed Changes to SSAP No. 49: Type of Issue: Life, Accident and Health Issued: Initial Draft Effective Date: January 1, 2001 Affects: Nullifies and incorporates INT Affected by: No other pronouncements Interpreted by: No other pronouncementsint INT 06-07: Definition of Phrase Other Than Temporary Proposed changes to SSAP No. 26: 10. An other-than-temporary (INT 06-07) impairment shall be considered to have occurred if it is probable that the reporting entity will be unable to collect all amounts due according to the contractual terms of a debt security in effect at the date of acquisition. A decline in fair value which is other-than-temporary includes situations where a reporting entity has made a decision to sell a security prior to its maturity at an amount below its carrying value. If it is determined that a decline in the fair value of a bond is other-than-temporary, an impairment loss shall be recognized as a realized loss equal to the entire difference between the bond s carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. The measurement of the impairment loss shall not include partial recoveries of fair value subsequent to the balance sheet date. For reporting entities required to maintain an AVR/IMR, the accounting for the entire amount of the realized capital loss shall be in accordance with SSAP No. 7 Asset Valuation Reserve and Interest Maintenance Reserve. Credit related other-than-temporary impairment losses shall be recorded through the AVR; interest related other-than-temporary impairment losses shall be recorded through the IMR. Proposed changes to SSAP No. 30: 9. For any decline in the fair value of a common stock which is determined to be other than temporary (INT 06-07) the common stock shall be written down to fair value as the new cost basis and the amount of the write down shall be accounted for as a realized loss. For those reporting entities required to maintain an AVR, realized losses shall be accounted for in accordance with SSAP No. 7. Subsequent fluctuations in fair value shall be recorded as unrealized gains or losses. Future declines in fair value which are determined to be other than temporary shall be recorded as realized losses. A decline in fair value which is other than temporary includes situations where a reporting entity has made a decision to sell a security at an amount below its carrying value. Proposed changes to SSAP No. 32: 23. An other-than-temporary (INT 06-07) impairment shall be considered to have occurred if it is probable that the reporting entity will be unable to collect all amounts due according to the contractual terms of the security in effect at the date of acquisition. A decline in fair value which is other-than-temporary includes situations where the reporting entity has made a decision to sell a security prior to its maturity at an amount below its carrying value (i.e., amortized cost). If it is determined that a decline in the fair value of a redeemable preferred stock is other-thantemporary, an impairment loss shall be recognized as a realized loss equal to the entire difference between the redeemable preferred stock s carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. The measurement of the impairment loss shall not include partial recoveries of fair value subsequent to the balance sheet date. For reporting entities required to maintain an AVR, realized losses shall be accounted for in accordance with SSAP No. 7 Asset Valuation Reserve and Interest Maintenance Reserve National Association of Insurance Commissioners 15

16 25. If it is determined that a decline in the fair value of a perpetual preferred stock is otherthan-temporary (INT 06-07), an impairment loss shall be recognized as a realized loss equal to the entire difference between the perpetual preferred stock s carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. The measurement of the impairment loss shall not include partial recoveries of fair value subsequent to the balance sheet date. For reporting entities required to maintain an AVR, realized losses shall be accounted for in accordance with SSAP No. 7 Asset Valuation Reserve and Interest Maintenance Reserve. A decline in fair value which is other-than-temporary includes situations where the reporting entity has made a decision to sell a security at an amount below its carrying value. Proposed changes to SSAP No. 37: 16. A mortgage loan shall be considered to be impaired when, based on current information and events, it is probable that a reporting entity will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. According to the contractual terms means that both the contractual principal payments and contractual interest payments of the mortgage loan will be collected as scheduled in the mortgage agreement. A reporting entity shall measure impairment based on the fair value (as determined by acceptable appraisal methodologies) of the collateral less estimated costs to obtain and sell. The difference between the net value of the collateral and the recorded investment in the mortgage loan shall be recognized as an impairment by creating a valuation allowance with a corresponding charge to unrealized loss or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to unrealized gain or loss. Subsequent to the initial measurement of impairment, if there is a significant change (increase or decrease) in the net value of the collateral, the reporting entity shall adjust the valuation allowance; however, the net carrying amount of the loan shall at no time exceed the recorded investment in the loan. For reporting entities required to maintain an asset valuation reserve (AVR), the unrealized gain or loss on impairments shall be included in the calculation of the AVR. If the impairment is other than temporary (INT 06-07), a direct write down shall be recognized as a realized loss, and a new cost basis is established. This new cost basis shall not be changed for subsequent recoveries in value. Mortgage loans for which foreclosure is probable shall be considered permanently impaired. Proposed changes to SSAP No. 39: 14. If the impairment is temporary, any resulting adjustment shall be made to the valuation reserve (contra-asset) and unrealized gains and losses. Subsequent to the initial measurement of impairment, if there is a significant change (increase or decrease) in the risk factors affecting the value of the mortgage, the reporting entity shall adjust the valuation allowance in accordance with paragraph 13; however, the net carrying amount of the loan shall at no time exceed the recorded investment in the loan. The term recorded investment in the loan is distinguished from net carrying amount of the loan because the latter term is net of the valuation allowance, while the former term is not. The recorded investment (including accrued interest, net deferred loan fees, and unamortized premium or discount) in the loan does, however, reflect any direct write down of the investment. If the impairment is other than temporary (INT 06-07), the investment shall be written down to fair value as the new cost basis and the amount of the write down shall be accounted for as a realized loss. The new basis shall not be changed for subsequent recoveries in fair value. A reverse mortgage shall be considered to be impaired when, based on current information and events, it is probable that the reporting entity will be unable to collect all amounts due according to the contractual terms of the reverse mortgage. According to the contractual terms means that both the contractual principal payments and contractual interest payments of the loan will be collected as specified in the reverse mortgage agreement National Association of Insurance Commissioners 16

17 Proposed changes to SSAP No. 43R: 19. An investor shall continue to estimate cash flows expected to be collected over the life of the loan-backed or structured security. If, upon subsequent evaluation: a. The fair value of the loan-backed or structured security has declined below its amortized cost basis, an entity shall determine whether the decline is other than temporary (INT 06-07). For example, if, based on current information and events, there is a decrease in cash flows expected to be collected (that is, the investor is unable to collect all cash flows expected at acquisition plus any additional cash flows expected to be collected arising from changes in estimate after acquisition (in accordance with paragraph 19.b.), an other-than-temporary impairment shall be considered to have occurred. The investor shall consider both the timing and amount of cash flows expected to be collected in making a determination about whether there has been a decrease in cash flows expected to be collected. Proposed changes to SSAP No. 48: 16. For any decline in the fair value of an investment in a joint venture, partnership, or limited liability company which is determined to be other than temporary (INT 06-07), the investment shall be written down to fair value as the new cost basis and the amount of the write down shall be accounted for as a realized loss. The write down shall first be considered as an adjustment to any portion of the investment that is nonadmitted (e.g., goodwill). The new cost basis shall not be changed for subsequent recoveries in fair value. Future declines in fair value, which are determined to be other than temporary, shall be recorded as realized losses. Proposed changes to SSAP No. 68: 8. For any decline in the fair value of an entity, acquired through a purchase, that is other than temporary (INT 06-07), the investment shall be written down to fair value as the new cost basis and the amount of the write down shall be accounted for as a realized loss. The write down shall first be considered as an adjustment to any portion of the investment that is nonadmitted (e.g., nonadmitted goodwill). The new cost basis shall not be changed for subsequent recoveries in fair value. Future declines in fair value, which are determined to be other than temporary, shall be recorded as realized losses. Proposed changes to SSAP No. 93: 13. Among other things, an other-then-temporary impairment (INT 06-07) shall be considered to have occurred if it is probable that future tax benefits will not be received as expected. For example, for LIHTC properties based on state tax credits, if the reporting entity intends to decrease premium volume in that state, it may affect whether or not the tax credits in that state are realizable. The best available information about market share or premiums by state and premiums by line of business generally should be used to estimate the amount of future tax credits that are realizable. For purposes of determining impairment, future tax benefits consist of both estimated tax losses and anticipated tax credits. Loan default or a reasonable probability of credit recapture would signify that tax benefits would not be received as expected. Proposed changes to SSAP No. 97: 32. For any decline in the fair value of an investment in a SCA entity that is other than temporary (INT 06-07), the investment shall be written down to fair value as the new cost basis and the amount of the write down shall be accounted for as a realized loss. The write down shall first be considered as an adjustment to any portion of the investment that is nonadmitted (e.g., goodwill). The new cost basis shall not be changed for subsequent recoveries in fair value. Future declines in fair value, which are determined to be other than temporary shall be recorded as 2013 National Association of Insurance Commissioners 17