Allison Johnson, CPA, is an Audit Senior Manager specializing in the insurance industry. She is the Education and NAIC specialist for the Insurance Practice Group at Larson & Company.
Matt Zollinger, CPA, is an Audit Senior Manager working with insurance companies across the country.  Matt is Larson & Company’s expert in life insurance matters. 


NAIC Update

NAIC staff provided an update on recent changes as well as current projects.  Key items they covered are as follows:

  • Change in terminology: Changes to the Statements of Statutory Accounting Principles (SSAP) will no longer be classified as substantive or non-substantive. What was formerly known as a substantive change will now be known as a new NAIC concept and non-substantive changes will be known as SSAP clarifications.
  • Briefly discussed crypto currency holdings and clarified they are currently non-admissible.
  • Discussed the update to the conceptual framework that was made to match a similar change in the GAAP updates. This update updates the definition of an asset and liability.
  • Various current projects in progress to improve transparency of reporting of related party transactions.
  • Derivatives: This NAIC project is in response to the FASB clarifications of derivatives and what is considered an effective hedge. A key point in the discussion is while the effectiveness of the hedge should closely mimic US GAAP, the different accounting basis and measurement basis between statutory accounting and US GAAP still poses a challenge.
  • Principles based bond definition: This is an ongoing project to determine what is considered a bond. The current bond definition focuses on legal form and this project continues to shift towards looking at the substance of a holding. As a result of this project there are significant changes to schedule D anticipated. There is not currently expected to be a significant impact on RBC.


NAIC Innovation Cybersecurity and Technology (H) Committee

One of the sessions covered the H committee of the NAIC and summarized the purpose and goals of the committee. The mission of the Innovation, Cybersecurity, and Technology (H) Committee is to: 1)  provide a forum for state insurance regulators to learn and have discussions regarding: cybersecurity, innovation, data security and privacy protections, and emerging technology issues; 2) monitor developments in these areas that affect the state insurance regulatory framework; 3) maintain an understanding of evolving practices and use of innovation technologies by insurers and producers in respective lines of business; 4) coordinate NAIC efforts regarding innovation, cybersecurity and privacy, and technology across other committees; and 5) make recommendations and develop regulatory, statutory or guidance updates, as appropriate.


GAAP Update

Various sessions discussed the following GAAP updates:

Leases Topic 842

In March of 2016, the FASB issued Accounting Standards Update 2016-02, Leases, which requires all leases that have a term of more than 12 months to be recognized as assets and liabilities on the balance sheet at inception. A lessee would recognize a lease liability to make lease payments owed to a lessor (liability) and a benefit for the right to use the leased asset (asset) for the lease term. This guidance was effective for fiscal years beginning after December 15, 2021.

Financial Instruments – Credit Losses Topic 326

In June of 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November 2019, FASB issued ASU 2019-10 which effectively defers the date of implementation for this guidance. This requirement eliminates the probable initial recognition threshold in current GAAP which has delayed recognition of credit losses until the loss was probable. Instead, the new treatment will better reflect an entity’s current estimate of all expected credit losses. In addition, the new guidance requires that any credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down. Initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Subsequent changes in the allowance for credit losses are recorded in credit loss expense. This will allow entities to also record reversals of credit losses in current period net income, whereas the current GAAP prohibits reflecting these improvements in current period earnings. The guidance is effective for fiscal years beginning after December 15, 2022.

Additional discussions occurred during the regulator’s roundtable concerning if the NAIC is considering recognizing Topic 326 or if any additional changes are in the pipeline. The conclusion of the discussion was no current plans are in place to adopt Topic  326 in its entirety. However, because the SSAP’s do take verbiage from GAAP as part of its impairment guidance, changes will be needed once Topic 326 is in effect. No additional changes are currently being considered.


Reinsurance Placement and Extreme Weather Trends

Various sessions discussed the importance of reinsurance and the reinsurance placement cycle. The discussions were led by representatives from BMS Re. The highlights from the discussion included the importance of developing good relationships with your reinsurers, looking for the right reinsurer relationships, and the process of reinsurance placement through a broker.

The importance of having appropriate relationships with your reinsurer was highlighted in an additional session discussing extreme weather trends. As weather related losses continue to increase it’s important to have appropriate relationships with reinsurers to overcome losses. Extreme weather in the last decade has appeared to increase, however data points to frequency being relatively consistent with no significant increase. The losses however, because of extreme weather continues to increase significantly. This being driven by growth in areas susceptible to extreme weather.


Diversity and Environmental, Social and Governance (“ESG”)

The opening day keynote and various discussions throughout the conference related to diversity in the workplace and new Environmental, Social and Governance (“ESG”) reporting requirements and trends. Some key take aways from the diversity discussions included the lack of diversity in the insurance industry and that hoping for diversity isn’t enough. Companies today need to plan for diversity and make it a priority. Companies lacking in diversity are missing out on various viewpoints and the ability to connect with a large portion of market participants. Diversity and ESG shouldn’t be a program, but it should be included in the company’s plans.

ESG reporting requirements are beginning to take shape for public companies, however there is no current requirement for private companies. The NAIC is monitoring industry trends, but currently has no plans to adopt reporting requirements.


If you have any questions with any of the above information or would like to discuss any topic in more detail, please reach out to your Larson CPA representative.