Statutory Accounting Principles Working Group s5

Ref #2015-48 Statutory Accounting Principles Working Group Maintenance Agenda Submission Form Form A

Issue: Review of Pending FAS 133 EITF’s

Check (applicable entity): P/C Life Health Modification of existing SSAP New Issue or SSAP

Description of Issue: In reviewing SSAP No. 86—Derivatives, it was identified that several EITF’s noted as adopted with modification in Appendix D of the Accounting Practices and Procedures Manual were not referenced within the “Relevant Literature” section of SSAP No. 86. In review, staff suspects that these EITFs were intended to be included in the “framework” adoption of FAS 133 detail in SSAP No. 86. However, staff is unable to find specific reference in historical documents regarding this intent. (These have been identified as adopted in Appendix D since 2003.) At the Summer 2015 National Meeting, based on comments received, the Working Group directed NAIC staff to mark these EITF’s as “pending” in Appendix D and prepare subsequent agenda items for the Working Group to review and discuss these GAAP pronouncements.

For purposes of this agenda item, staff is separately addressing the following EITFs (other noted EITFs are addressed in additional agenda items, including 2015-43, which addresses EITF 99-02, Accounting for Weather Derivatives):

EITF Name Staff Comments Superseded by EITF 02-03. EITF 02-03 was Accounting for Contracts Involved in Energy 98-10 rejected as not applicable to statutory Trading and Risk Management Activities accounting in Appendix D Nullified by FAS 150. FAS 150 was adopted Application of Issue 00-19 to Forward Equity as referenced in SSAP No. 104R. All other 98-12 Sales Transactions language was rejected as not applicable to statutory accounting in Appendix D Superseded by EITF 08-08. EITF 08-08 was Accounting for Debt Convertible into the 99-01 rejected as not applicable to statutory Stock of a Consolidated Subsidiary accounting in Appendix D Application of Issue No. 96-13 to Derivative Codified in EITF 00-19. EITF 00-19 was 99-03 Instruments with Multiple Settlement rejected as not applicable to statutory Alternatives accounting in Appendix D Application of Issue No. 96-13 to Equity Derivative Instruments That Contain Certain Codified in EITF 00-19. EITF 00-19 was 00-07 Provisions that Require Net Cash Settlement rejected as not applicable to statutory if Certain Events Outside the Control of the accounting in Appendix D Issuer Occur

Existing Authoritative Literature:

56. This statement adopts the framework established by FAS 133, FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, An amendment of FASB Statement No. 133 (FAS 137) and FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, An amendment of FASB Statement No. 133 (FAS 138), for fair value and cash flow hedges, including its technical guidance to the extent such guidance is consistent with the statutory accounting approach to derivatives utilized in this statement. This statement adopts the provisions of FAS 133 and 138 related to foreign currency hedges. With the exception of guidance specific to foreign currency hedges and amendments specific to refining the hedging of interest rate risk (under FAS 138, the risk of changes in the benchmark interest rate would be a hedged risk), this statement rejects FAS No. 137 and 138 as well as the various related Emerging Issues Task Force interpretations. This statement adopts paragraphs 4 and 25 of FASB Statement No. 149: Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FAS 149) regarding the definition of an underlying and guidance for assessing hedge effectiveness. All other paragraphs in FAS 149 are rejected as not applicable for statutory accounting. This statement adopts FSP FAS 133-1 and FIN 45-5: Disclosures about Credit Derivatives and Certain Guarantees, An Amendment of FASB Statement No. 133 and FASB Interpretation No.45 and Clarification of the Effective Date of FASB Statement No. 161 (FSP FAS 133-1 and FIN 45-4) and requires disclosures by sellers of credit derivatives. This statement rejects FSP FIN 39-1, Amendments of FASB Interpretation No. 39, and ASU 2014-03, Derivatives and Hedging – Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach.

Appendix D –

98-10 Accounting for Contracts Involved in Energy Pending Trading and Risk Management Activities 98-12 Application of Issue No. 00-19 to Forward Pending Equity Sales Transactions 99-1 Accounting for Debt Convertible into the Stock Pending of a Consolidated Subsidiary 99-3 Application of Issue No. 96-13 to Derivative Pending Instruments with Multiple Settlement Alternatives 00-7 Application of Issue No. 96-13 to Equity Pending Derivative Instruments That Contain Certain Provisions That Require Net Cash Settlement If Certain Events outside the Control of the Issuer Occur

Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): These EITFs were previously discussed in agenda item 2015-22. In addition, EITF 99-02 is addressed in agenda item 2015-43.

Information or issues (included in Description of Issue) not previously contemplated by the SAPWG: None

Staff Recommendation: It is recommended that the Working Group move this agenda item to the nonsubstantive active listing and expose nonsubstantive revisions to Appendix D as outlined below. The revisions to Appendix D to identify that EITF 98-10, 99-1, 99-3 and 00-7 are rejected as not applicable to statutory

© 2015 National Association of Insurance Commissioners 2 Ref #2015-48 accounting and shown in Nonapplicable GAAP Pronouncements. EITF 98-12, references the review of FAS 150. These revisions are recommended based on Working Group actions for other GAAP Pronouncements, which nullified or superseded the EITF’s addressed in this agenda item (refer to staff comments under the Description of Issue section above).

Appendix D – Consensus Opinions of the Emerging Issues Task Force

GAAP Acctg Stds Pronou Stat Name Status Disposition Codification ncemen Ref Topic-Subt ts 98-10 Accounting for Contracts Involved in Pending Energy Trading and Risk Management Superseded Activities by EITF 02- N/A 03

Complete 98-12 Application of Issue No. 00-19 to Forward Pending Equity Sales Transactions Nullified by FAS 150

Complete – Refer to review of FAS 150 99-1 Accounting for Debt Convertible into the Pending Stock of a Consolidated Subsidiary Superseded by EITF 08- N/A 08

Complete 99-3 Application of Issue No. 96-13 to Pending Derivative Instruments with Multiple Codified in N/A Settlement Alternatives EITF 00-19

Complete 00-7 Application of Issue No. 96-13 to Equity Pending Derivative Instruments That Contain Codified in N/A Certain Provisions That Require Net Cash EITF 00-19 Settlement If Certain Events outside the Control of the Issuer Occur Complete

Appendix D – Nonapplicable GAAP Pronouncements

GAAP Pronouncement Title EITF 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities EITF 99-01 Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary EITF 99-03 Application of Issue No. 96-13 to Derivative Instruments with Multiple Settlement Alternatives EITF 00-07 Application of Issue No. 96-13 to Equity Derivative Instruments That Contain Certain Provisions That Require Net Cash Settlement If Certain Events outside the Control of the Issuer Occur

Staff Review Completed by: Josh Arpin – September 2015

Status: On November 19, 2015, the Statutory Accounting Principles (E) Working Group moved this item to the substantive active listing exposed nonsubstantive revisions to Appendix D, as illustrated above, to identify that EITF 98-10, 99-1, 99-3 and 00-7 are rejected as not applicable to statutory accounting and to update the status of EITF 98-12 to reference the review of FAS 150.

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