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Fall NAIC Updates: Potential Changes to SSAP 100 and SVO Task Force Status

Potential Changes to SSAP 100 – Fair Value Measurements

On Monday, October 18, 2010, the Statutory Accounting Principles Working Group (SAPWG) discussed potential amendments to SSAP 100 – Fair Value Measurements.

Recurring vs. Non-Recurring Schedules

The focus of the amendment surrounded the elimination of fair value measurements between “recurring” and “non-recurring” schedules. This is a modification from Generally Accepted Accounting Principles (GAAP) currently in effect for statutory accounting purposes, since the proposed schedule will differentiate measurements by asset class. Since all securities that are reported at lower of cost or market would be considered “recurring” the SAPWG does not see the need to require further differentiation between “recurring” and “non-recurring”.

New Disclosure in 2011

The proposed change would also require a new disclosure beginning in 2011.The new disclosure would require documentation of the fair value hierarchy, for all securities that are disclosed with a fair value measurement but may not be reported at fair value, in the statement of position. It is proposed that this change be an annual reporting requirement satisfied through electronic disclosure in the investment schedules.

The SAPWG agreed to expose the above changes for a 30 day comment period, expected to end on or about November 18, 2010, after which the SAPWG will hold a conference call in early-mid December and make a decision at that time.

Valuation of Securities Task Force Updates

Also of note, related to investments, were a couple of items addressed by the Valuation of Securities Task Force.

• There has been an attempt to correct conflicting investment classifications between the NAIC Securities Valuation Office (SVO) and Statements of Statutory Accounting Principles (SSAPs). For example, under the current methods used by the SVO, a residential mortgage-backed security (RMBS), may be classified as a preferred stock, which is then reported on Schedule D, Part 2. This classification directly contradicts SSAP 43R guidance.
  
  The proposal, which will be exposed for a 45-day comment period, would require the SVO to base classifications on the definitions provided in the relevant SSAPs. Also, when the SVO performs annual updates, securities are to be re-classified as necessary, in accordance with the SSAPs.
• The Task Force is considering a filing exemption for certificate of deposits issued by rated banks and under securities guaranteed by the Federal Deposit Insurance Corporation (FDIC). With interest rates at all time lows, this seems to make economical sense. The initial filing cost of a security with the SVO can virtually eliminate the entire return on the investment the first year.

For more information on the NAIC Fall meeting or the items mentioned above, contact our Insurance Team.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.