Kramer Levin Naftalis & Frankel LLP

The National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles Working Group (SAPWG) met remotely on July 30, as part of the NAIC’s all-virtual 2020 Summer National Meeting.

SAPWG exposed for public comment, until August 14, draft guidance on topics including the following:

  • Extension of the NAIC’s prior action on the “90-day rule,” motivated by the COVID-19 pandemic, so that for the third quarter of 2020, premium receivables more than 90 days old would not be required to be non-admitted
  • Extension until September 30 of relief concerning impairments of mortgage loans
  • Impairments on other investments where payment holidays have been granted
  • “Levelized commissions,” in which a funding agent is used to level premium obligations between a carrier and agents
  • Effect of a disclaimer (a statement that one entity does not control another despite owning at least 10 percent of the other’s voting shares) on related-party status for statutory accounting purposes
  • Updates to the filing review process for investments in subsidiary, controlled and affiliated (SCA) entities.
  • Clarification on situations where equity-method losses on an SCA investment can result in negative equity valuation of such investment
  • Clarification that a mortgage participation may include the right to take legal action but typically does not include the right to take such action unilaterally
  • Reporting on short-term investments to the extent that they include cash equivalents
  • Mapping of accounting designations of residential and commercial mortgage-backed securities to the NAIC designation categories as shown in the Purposes and Procedures Manual of the NAIC Investment Analysis Office
  • Accounting treatment of perpetual bonds
  • Whether credit tenant loans (CTLs) are appropriately classified under SSAP No. 43R – Loan-Backed and Structured Securities
  • Return of premium and other premium adjustments

The following items were deferred for subsequent interim or national meetings of SAPWG:

  • Investment products that appear to be surplus notes but include “multi-layered/linked transactions that ‘embed’ the risk” of payment non-approval by the insurance regulator
  • Clarification of reporting for retroactive reinsurance that qualifies for accounting treatment as prospective reinsurance

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