On January 10, 2024, the Statutory Accounting Principles Working Group (SAPWG) adopted its previously exposed guidance on two separate statutory accounting matters.
The first matter relates to a statutory accounting principles (SAP) reference item #2023-24 with regards to Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments–Credit Losses (CECL). The adopted exposure formally rejects ASU 2016-13 and any of its related subsequent ASUs, thus rejecting CECL for statutory accounting and reporting purposes. The rejection is effective for the 2023 reporting year.
In accordance with AU-C 800, the notes to the statutory financial statements should provide a summary of significant accounting policies and a description of how those policies, as prescribed by SAP, may differ from U.S. generally accepted accounting principles (GAAP). Accordingly, auditors should consider the nature and extent of disclosure that may be necessary to summarize any applicable CECL-related SAP to GAAP accounting differences.
The second matter relates to SAP INT 23-04 (“INT” or “Interpretation”) that provides accounting and reporting guidance for ceding entities with reinsurance balances due from Scottish Re, a U.S.-based life reinsurer in liquidation. The INT includes guidance related to five key statutory accounting and reporting issues and is effective for reporting periods ending on or after December 31, 2023.
The five key statutory accounting and reporting matters are:
- Contract commutations;
- Impairment of recoverables;
- Reporting of recoverables;
- Admissibility of recoverables; and
With respect to the admissibility of recoverables, insurers should only admit amounts related to claims incurred prior to the contract cancellation date (September 30, 2023) that have been paid by the reporting entity as of the reporting date and are not in dispute after impairment review, and reinsurance recoverables that are not in dispute and are secured by collateral in an A-785 compliant trust. Conversely, insurers should non-admit all amounts recoverable that are either in dispute or that are not secured by collateral in a trust compliant with Appendix A-785. Readers should refer to the full text of the adopted INT for a discussion of each of the five key statutory accounting and reporting matters provisions.
The INT is applicable only to amounts arising from the liquidation of Scottish Re.