Exposure Draft
SSAP No. 40—Real Estate Investments—Revised (SSAP No. 40R)
Notice of Public Hearing and Request for Written Comments
Hearing Date: TBD
Location: Conference Call
Deadline for Written Notice of Intent to speak: N/A
Deadline for Receipt of Written Comments:
Dec. 8, 2014
Basis for hearings. The Statutory Accounting Principles Working Group (SAPWG) will hold a public hearing to
obtain information from and views of interested individuals and organizations about the standards proposed in this
Exposure Draft. The SAPWG will conduct the hearing in accordance with the National Association of Insurance
Commissioners (NAIC) policy statement on open meetings. An individual or organization desiring to speak must
notify the NAIC in writing by December 8, 2014. Speakers will be notified as to the date, location, and other details
of the hearings.
Oral presentation requirements. The intended speaker must submit a position paper, a detailed outline of a
proposed presentation or comment letter addressing the standards proposed in the Exposure Draft by December 8,
2014. Individuals or organizations whose submission is not received by that date will only be granted permission to
present at the discretion of the SAPWG chair. All submissions should be addressed to the NAIC staff at the address
listed below. Comments can also be submitted by electronic mail to statacct@naic.org.
Format of the hearings. Speakers will be allotted up to 10 minutes for their presentations to be followed by a
period for answering questions from the SAPWG. Speakers should use their allotted time to provide information in
addition to their already submitted written comments as those comments will have been read and analyzed by the
SAPWG. Those submissions will be included in the public record and will be available at the hearings for
inspection.
Copies. Exposure Drafts can be obtained on the Internet at the NAIC Home Page (http://www.naic.org). The
documents can be downloaded using Microsoft Word.
Written comments. Participation at a public hearing is not a prerequisite to submitting written comments on this
Exposure Draft. Written comments are given the same consideration as public hearing testimony.
The Statutory Accounting Principles Statement of Concepts was adopted by the Accounting Practices & Procedures
(EX4) Task Force on September 20, 1994, in order to provide a foundation for the evaluation of alternative
accounting treatments. All issues considered by the SAPWG will be evaluated in conjunction with the objectives of
statutory reporting and the concepts set forth in the Statutory Accounting Principles Statement of Concepts.
Whenever possible, establish a relationship between your comments and the principles defining statutory
accounting.
The exposure period is not meant to measure support for, or opposition to, a particular accounting treatment but
rather to accumulate an analysis of the issues from other perspectives and persuasive comments supporting them.
Therefore, form letters and objections without valid support for their conclusions are not helpful in the deliberations
of the working group. Comments should not simply register your agreement or disagreement without a detailed
explanation, a description of the impact of the proposed guidelines, or possible alternative recommendations for
accomplishing the regulatory objective.
Any individual or organization may send written comments addressed to the Working Group to the attention of Julie
Gann, at Jgann@naic.org or Robin Marcotte, Rmarcotte@naic.org or to the address listed below, no later than
December 8, 2014. Comments can also be submitted by electronic mail to statacct@naic.org. Electronic submission
is preferred.
National Association of Insurance Commissioners
1100 Walnut Street, Suite 1500 Kansas City, MO 64106
(816) 842-3600
Julie Gann, Jgann@naic.org is the NAIC Staff project lead for this topic.
Statement of Statutory Accounting Principles No. 40 - Revised
Real Estate Investments
STATUS
Type of Issue:
Common Area
Issued:
Initial Draft; November 16, 2014 Exposure draft- substantively revised – TBD
Effective Date:
January 1, 2001; substantive revisions detailed in Issue Paper No. 149 are
proposed to be effective January 1, 2015.
Affects:
Supersedes SSAP No. 77 with guidance incorporated into this SSAP, August
2012
Nullifies and incorporates INT 99-16, INT 99-22, INT 99-25, INT 08-02,
INT 08-07
Nullifies INT 04-18
Affected by:
See paragraph 33
Paragraphs 10, 11 and 24 superseded by SSAP No. 90
Interpreted by:
INT 99-00, INT 06-13
STATUS ....................................................................................................................................................................... 1
SCOPE OF STATEMENT ............................................................................................................................................ 3
SUMMARY CONCLUSION ........................................................................................................................................ 3
Income, Expenses, and Capital Improvements ..............................................................................................6
Sale of Real Estate .........................................................................................................................................6
Real Estate Projects Under Development ......................................................................................................7
Participating Mortgage Loans .......................................................................................................................7
Disclosures ....................................................................................................................................................8
Relevant Literature ........................................................................................................................................8
Effective Date and Transition ........................................................................................................................9
REFERENCES ............................................................................................................................................................ 10
Relevant Issue Papers .....................................................................................................................................10
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Statement of Statutory Accounting Principles
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Real Estate Investments
SSAP No. 40R
Real Estate Investments
SCOPE OF STATEMENT
1.
This statement establishes statutory accounting principles for real estate investments.
SUMMARY CONCLUSION
2.
Real estate investments are defined as directly-owned real estate properties and single real-estate
property investments that are directly and wholly owned through a limited liability company (LLC) that
meet all of the criteria in paragraph 4. Real estate investments may be acquired in exchange for
consideration (including but not limited to cash, a contract for deed or mortgage, or other non-cash
consideration), obtained through foreclosure or voluntary conveyance in satisfaction of a mortgage loan,
or received as contributed surplus. Real estate investments meet the definition of assets as defined in
SSAP No. 4—Assets and Nonadmitted Assets and are admitted assets to the extent they conform to the
requirements of this statement.
3.
Real estate investments include certain acquisition, development and construction arrangements
(ADC) as defined in SSAP No. 38—Acquisition, Development and Construction Arrangements (SSAP
No. 38).
4.
A single real estate property investment that is wholly-owned by an LLC that is directly1 and
wholly-owned by the reporting entity shall be captured within this Statement, and reported on Schedule A
– Real Estate if all of the following criteria are met. Real estate owned through an LLC that meets the
stated criteria shall follow all statutory requirements within this Statement 2. Real estate owned through an
LLC that does not meet the criteria shall be reported on Schedule BA – Other Long-Term Invested
Assets. Regardless if reported on Schedule A or Schedule BA, all LLC’s owned by the reporting entity
shall be detailed in Schedule Y.
a.
The real estate LLC has no transactions of its own other than transactions associated with
an ownership structure utilized only for the ownership and management of a single real
estate investment exclusively for the reporting entity (e.g., real estate taxes). A reporting
entity may have more than one LLC that wholly-owns a single real estate property
investment, but each LLC must separately comply with the paragraph 4 conditions, and
be separately reported on Schedule A. All transactions of the LLC shall be reported as
transactions of the reporting entity pursuant to the guidance in paragraphs 15-17.
b.
The LLC only owns a single real estate property supported by an appraisal pursuant to
paragraphs 13-14. A single real estate property can include multiple parcels of land and
more-than-one structure; however, to be considered a single real estate property, the
multiple of parcels of land and structure(s) must be contiguously located and managed
together as a single asset (with reasonable allowances for public access routes). Criteria
that may assist with determining a single-real estate property would include the legal
1
For example, qualifying LLCs that are owned by a downstream holding company are not within scope of this
statement regardless if the downstream holding company is wholly-owned by the reporting entity.
2
The inclusion in this statement of real estate owned by a single member LLC is not an election by the reporting
entity. All real estate owned in an LLC meeting the criteria in paragraph 4 are required to be captured within this
statement, and are subject to this statement’s requirements for valuation and admittance. Departures from the
requirements within this SSAP, or continuing to follow SSAP No. 48 for these investments would be considered a
departure from NAIC statutory accounting principles subject to permitted or prescribed practice disclosure
requirements.
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Statement of Statutory Accounting Principles
definition of the property, real-estate tax assessments, postal address, the appraisal and
the management and use of the property.
c.
The reporting entity solely controls the real estate property in a manner similar to
directly-owned real estate. As such, the reporting entity controls others’ access to the real
estate, and the real estate must be able to be sold exactly as, and as promptly as, directlyowned real estate.
d.
The reporting entity solely and distinctly possesses all risks (other than the limitation of
potential liability afforded by the LLC structure itself) and rewards of ownership of the
real estate investment, without any constraints imposed by the LLC.
e.
The reporting entity is the only member of the LLC. The LLC is not comprised of any
other members, including: groups, competing interests, mutual beneficial interests, or coventurers. The single-member ownership is required even if other members in the LLC
are affiliates. An LLC comprised of affiliated parties is not within scope of this
Statement.
f.
There shall be no apportionment by the LLC or the reporting entity of the appraised
value, expenses or income from the single real estate property to any other entity or
between the general or separate account.
5.
Real estate investments shall be reported in accordance with the following balance sheet
categories, with parenthetical disclosure of the amount of related encumbrances:
a.
Properties occupied by the company – depreciated cost, less encumbrances;
b.
Properties held for the production of income – depreciated cost, less encumbrances; and
c.
Properties held for sale – lower of depreciated cost or fair value, less encumbrances and
estimated costs to sell the property. (Paragraph 21 of SSAP No. 90—Accounting for the
Impairment or Disposal of Real Estate Investments (SSAP No. 90) provides criteria that
must be met for this real estate classification.).
6.
Any real estate which is owned by and is more than 50% occupied by the reporting entity and its
affiliates shall be considered property occupied by the company. “More than 50% occupied” shall mean
that the square footage occupied by the reporting entity and its affiliates totals more than 50% of the
rentable square footage of the property, including common areas. This shall include property occupied by
the company which is not necessarily home office (e.g., claims processing, data processing and branch
centers). Property which does not meet this 50% requirement shall be classified as property held for the
production of income or property held for sale, consistent with SSAP No. 90.
7.
Encumbrances represent outstanding mortgages or other debt related to the real estate investment
and any unpaid accrued acquisition or construction costs. Participating mortgage loan liabilities are
addressed in paragraphs 21-23. Interest expense shall be included in investment expenses.
8.
The cost of real estate represents the fair value of the consideration exchanged plus any costs
incurred to place the real estate asset in usable condition, including but not limited to, brokerage fees,
legal fees, demolition, clearing and grading, fees of architects and engineers, any additional expenditures
made for equipment and fixtures that are made a permanent part of the structure and certain interest costs
as provided for in SSAP No. 44—Capitalization of Interest. Where cost includes both land and building,
the cost shall be allocated among the assets purchased based on the relative values determined using
appraisals, as described in paragraph 12. The cost shall be reduced by any amounts received for sales of
rights or privileges in connection with the property or by any cash recoveries received after acquiring title
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to the property. The cost of real estate which has been foreclosed upon shall be initially established in
accordance with SSAP No. 36—Troubled Debt Restructuring. The cost of contributed real estate shall be
initially established in accordance with SSAP No. 95—Exchanges of Nonmonetary Assets, A Replacement
of SSAP No. 28—Nonmonetary Transactions (SSAP No. 95) as a nonreciprocal transfer.
9.
Internal preacquisition costs classified as nonoperating at the date of a property acquisition (that
otherwise meet the requirements of paragraph 4 of FAS 67) shall be capitalized. If the entity subsequently
determines that the property should have been classified as operating at the date of acquisition, such costs
should be charged to expense and any additional costs shall be expensed as incurred. If internal
preacquisition costs classified as operating at the date of acquisition were expensed as incurred, and the
entity subsequently determines that the property should have been classified as nonoperating, the
expensed costs shall remain as originally reported and shall not be reclassified to capitalized costs.
10.
The cost of property included in real estate investments, other than land, shall be depreciated over
the estimated useful life, not to exceed fifty years. Depreciation expense shall be included in investment
expenses.
11.
Properties occupied by the company and properties held for the production of income shall be
carried at depreciated cost less encumbrances unless events or circumstances indicate the carrying amount
of the asset (amount prior to reduction for encumbrances) may not be recoverable. Paragraph 5 of FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121), provides examples of events or changes in circumstances which indicate that the
recoverability of the carrying amount of properties occupied by the company or properties held for the
production of income should be assessed. If the events or changes in circumstances set forth in
paragraph 5 of FAS 121 are present or if other events or changes in circumstances indicate that the
carrying amount of properties occupied by the company or properties held for the production of income
may not be recoverable, the entity shall determine whether an impairment loss must be recognized in
accordance with paragraph 6 of FAS 121. Property occupied by the company shall be evaluated using the
asset grouping approach of paragraph 8 of FAS 121. An impairment loss is measured as the amount by
which the individual carrying amounts exceed the fair value of properties occupied by the company or
properties held for the production of income. Fair value is determined in accordance with paragraph 12 of
this statement. If the fair value of the asset is less than the carrying value, the asset shall be written down
to the fair value thereby establishing a new cost basis. The new cost basis shall not be changed for
subsequent recoveries in fair value. The adjustment shall be recorded in the statement of operations as a
realized loss.
12.
Properties that the reporting entity has the intent to sell or is required to sell shall be classified as
properties held for sale and carried at the lower of depreciated cost or fair value less encumbrances and
estimated costs to sell the property consistent with paragraph 16 of FAS 121. The intent to sell a property
exists when management, having the authority to approve the action, has committed to a plan to dispose
of the asset, either by sale or abandonment. Fair value of the asset shall be determined in accordance with
paragraph 12 of this statement. Subsequent revisions to the fair value of the asset shall be accounted for in
accordance with paragraph 17 of FAS 121.
13.
The current fair value of real estate shall be determined on a property by property basis (i.e.,
increases in the fair value of one property shall not be used to offset declines in fair value of another). If
market quotes are unavailable, estimates of fair value shall be determined by an appraisal (internal or
third party), which is based upon an evaluation of all relevant data about the market, considering the
following:
a.
A physical inspection of the premises;
b.
The present value of future cash flows generated by the property (Discounted Cash
Flows), or capitalization of stabilized net operating income (Direct Capitalization);
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SSAP No. 40R
Statement of Statutory Accounting Principles
c.
Current sales prices of similar properties with adjustments for differences in the
properties (Sales Comparison Approach);
d.
Costs to sell the property if the reporting entity does not have the intent or ability to hold
the real estate as an investment; and
e.
Replacement costs of the improvements, less depreciation, plus the value of the land
(Cost Approach).
14.
For all properties held for the production of income, the reporting entity must maintain an
appraisal that is no more than five years old as of the reporting date. For all properties held for sale, an
appraisal shall be obtained at the time such property is classified as held for sale, and subsequently an
appraisal shall be maintained that is no more than five years old as of the reporting date. However, if
conditions indicate there has been a significant decrease in the fair value of a property, a current appraisal
shall be obtained. Additionally, appraisals shall be obtained for real estate investments at the time of
foreclosure or contribution. Contributed real estate shall be supported by an independent third party
appraisal at the date of contribution. If any of the previous conditions exist but an appraisal has not been
obtained, the related property shall be considered a nonadmitted asset until the required appraisals are
obtained.
Income, Expenses, and Capital Improvements
15.
Rental income on real estate leased is addressed in SSAP No. 22—Leases, which requires that
rental income be included in investment income. Expenses incurred in operating the real estate
investment, including but not limited to, real estate taxes, utilities, and ordinary repair and maintenance,
shall be charged to expense as incurred and included in investment expenses.
16.
Expenditures that are necessary to put the asset back into good operating condition or to keep it in
good operating condition, shall be charged to expense as incurred. Expenditures that add to or prolong the
life of the property shall be added to the cost of the real estate (capitalized) and depreciated over the
remaining estimated useful life of the property. If the property was fully depreciated at the time capital
improvements are incurred, the capital improvements shall be capitalized and depreciated over the
remaining extended useful life of the asset.
17.
A reporting entity shall include in both its income and expenses an amount for rent relating to its
occupancy of its own buildings. The amount recorded shall be at a rate comparable to rent received from
others and/or rental rates of like property in the same area. If this is unavailable, it shall be derived from
consideration of the repairs, expenses, taxes, and depreciation incurred, plus interest added at an average
fair rate on the carrying value of the reporting entity’s investment in its home office building.
Sale of Real Estate
18.
Recognition of profit on sales of real estate investments shall be accounted for in accordance with
FASB Statement No. 66, Accounting for Sales of Real Estate (FAS 66), except as modified in paragraph
19 of this statement, FASB Emerging Issues Task Force No. 87-9, Profit Recognition on Sales of Real
Estate with Insured Mortgages or Surety Bonds, FASB Emerging Issues Task Force No. 87-29, Exchange
of Real Estate Involving Boot, FASB Interpretation No. 43, Real Estate Sales an interpretation of FASB
Statement No. 66 (FIN 43) and FASB Emerging Issues Task Force No. 00-13, Determining Whether
Equipment is “Integral Equipment” Subject to FASB Statements No. 66 and No. 98 (INT 06-13). This
statement applies to all sales of real estate including real estate with property improvements or integral
equipment. The terms “property improvements” and “integral equipment” refer to any physical structure
or equipment attached to the real estate that cannot be removed and used separately without incurring
significant costs, such as an office building. Additionally, this guidance applies to all transfers of financial
assets that are in substance real estate.
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19.
Profit shall be recognized in full when real estate is sold, provided (a) the profit is determinable,
that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible
can be estimated, and (b) the earnings process is virtually complete, that is, the seller is not obliged to
perform significant activities after the sale to earn the profit. Unless both conditions exist, recognition of
all or part of the profit shall be postponed. Profit shall not be recognized by the full accrual method until
all of the following criteria are met:
a.
A sale is consummated;
b.
The buyer’s initial and continuing investments are adequate to demonstrate a
commitment to pay for the property;
c.
The seller’s receivable is not subject to future subordination; and
d.
The seller has transferred to the buyer the usual risks and rewards of ownership in a
transaction that is in substance a sale and does not have a substantial continuing
involvement with the property after the sale.
20.
The calculation of the buyer’s initial investment specified in paragraph 9 of FAS 66 shall be
modified to reflect that buyer’s notes must be supported by letters of credit from institutions that are listed
by the Securities Valuation Office of the National Association of Insurance Commissioners as meeting
credit standards to be included in determining the buyer’s initial investment. Any profit or loss is
considered a realized gain or loss in the year of the sale in accordance with FAS 66.
Real Estate Projects Under Development
21.
Costs and initial rental operations of real estate projects under development, which include ADC
arrangements accounted for as real estate under the provisions of SSAP No. 38, shall be accounted for in
accordance with FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real
Estate Projects (FAS 67). Costs incurred in connection with real estate projects shall be expensed as
incurred unless the criteria established in FAS 67 are met. The statement value of a real estate project, or
parts thereof, held for sale or development and sale shall not exceed the estimated selling price in the
ordinary course of business less estimated costs of completion (to stage of completion assumed in
determining the selling price), holding, and disposal (net realizable value). If costs exceed net realizable
value, capitalization of eligible costs shall continue, however, an allowance shall be provided to reduce
the admitted value to estimated net realizable value.
Participating Mortgage Loans
22.
A participating mortgage loan is established when the lender is entitled to participate in
appreciation of the fair value of mortgaged real estate, the results of operations of the mortgaged real
estate project, or in both. Mortgage loan participation features should be recorded at fair value at
inception of the loan. The borrower should recognize a participation liability for the determined fair
valued amount, with a corresponding debit to a debt discount account. The debt discount should be
amortized by the interest method, using the effective interest rate. After inception, adjustment of the
participation liability should occur at each reporting date to current fair value. The corresponding debit or
credit should be to the related debt discount account. The revised debt discount should be amortized
prospectively, using the effective interest rate method.
23.
The real estate investment with the participating mortgage loan should be reported in accordance
with paragraph 4, with no adjustment for appreciation of fair value.
24.
Extinguishment of participating mortgage loans prior to the due date should be determined in
accordance with SSAP No. 103—Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SSAP No. 103). Gains or losses from early extinguishment should be
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Statement of Statutory Accounting Principles
determined in considering the difference between the recorded amount of debt (including unamortized
debt discount and the participation liability) and the amount exchanged to extinguish the debt.
Disclosures
25.
An entity that recognizes an impairment loss shall disclose all of the following in
financial statements that include the period of the impairment write-down:
a.
A description of the impaired assets and the facts and circumstances leading to the
impairment;
b.
The amount of the impairment loss and how fair value was determined; and
c.
The caption in the statement of operations in which the impairment loss is aggregated.
26.
An entity that engages in retail land sales operations shall disclose:
a.
Maturities of accounts receivable for each of the five years following the date of the
financial statements;
b.
Delinquent accounts receivable and the method(s) for determining delinquency;
c.
The weighted average and range of stated interest rates of receivables;
d.
Estimated total costs and estimated dates of expenditures for improvements for major
areas from which sales are being made over each of the five years following the date of
the financial statements; and
e.
Recorded obligations for improvements.
27.
An entity that holds real estate investments through an LLC, which qualifies for inclusion in this
Statement because all the criteria in paragraph 4 are met, shall separately report each investment on
Schedule A, and code the real estate as wholly owned through an LLC.
28.
An entity that holds real estate investments with participating mortgage loan features should
disclose:
29.
a.
Aggregate amount of participating mortgage obligations at the balance-sheet date, with
separate disclosure of the aggregate participation liabilities and related debt discounts.
b.
Terms of participations by the lender in either the appreciation in the fair value of the
mortgaged real estate project or the results of operations of the mortgaged real estate
project, or both.
Refer to the preamble for further discussion regarding disclosure requirements.
Relevant Literature
30.
This statement adopts FAS 66, with modification to paragraph 9 to indicate that only letters of
credit from institutions listed by the Securities Valuation Office of the National Association of Insurance
Commissioners shall be included in determining the buyer’s initial investment. Additionally, as they
relate to FAS 66, the following are adopted: FASB Emerging Issues Task Force Issue No. 86-6,
Antispeculation Clauses in Real Estate Sales Contracts, FASB Emerging Issues Task Force No 87-9,
Profit Recognition on Sales of Real Estate with Insured Mortgages or Surety Bonds, FASB Emerging
Issues Task Force No 87-29, Exchange of Real Estate Involving Boot, FASB Emerging Issues Task Force
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No. 88-12, Transfer of Ownership Interest as Part of Down Payment under FASB Statement No. 66,
FASB Emerging Issues Task Force No. 88-24, Effect of Various Forms of Financing under FASB
Statement No. 66, FASB Emerging Issues Task Force No. 06-8: Applicability of the Assessment of a
Buyer’s Continuing Investment under FASB Statement No. 66 for Sales of Condominiums, with
modification consistent to paragraph 9 of FAS 66, in which continuing investment payments made in the
form of buyer’s notes must be supported by letters of credit from institutions that are listed by the
Securities Valuation Office of the National Association of Insurance Commissioners as meeting credit
standards to be included in determining the buyer’s initial investment, and FASB Emerging Issues Task
Force No. 07-6: Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement
No. 66, When the Arrangements Includes a Buy Sale Clause.
31.
This statement adopts FASB Interpretation No. 43, Real Estate Sales, an Interpretation of FASB
Statement No. 66 (FIN 43), which clarifies that the phrase “all real estate sales” includes sales of real
estate with property improvements or integral equipment that cannot be removed and used separately
from the real estate without incurring significant costs. This statement adopts FASB Emerging Issues Task
Force No. 84-17, Profit Recognition on Sales of Real Estate with Graduated Payment Mortgages or
Insured Mortgages, FASB Emerging Issues Task Force No. 89-13, Accounting for the Cost of Asbestos
Removal, FASB Emerging Issues Task Force No. 89-14, Valuation of Repossessed Real Estate, FASB
Emerging Issues Task Force No. 90-8, Capitalization of Costs to Treat Environmental Contamination,
FASB Emerging Issues Task Force No. 95-23, The Treatment of Certain Site Restoration/Environmental
Exit Costs When Testing a Long-Lived Asset for Impairment, FASB Emerging Issues Task Force 97-11:
Accounting for Internal Costs Relating to Real Estate Property Acquisitions, FASB Emerging Issues Task
Force No. 98-8: Accounting for Transfers of Investments That Are in Substance Real Estate and FASB
Emerging Issues Task Force No. 00-13, Determining Whether Equipment is “Integral Equipment”
Subject to FASB Statements No. 66 and No. 98, which clarifies the term “integral equipment” as used in
this statement.
32.
This statement adopts FAS 121 for real estate investments except for paragraphs 13, 14.c. and
14.d. which are rejected in SSAP No. 68—Business Combinations and Goodwill. This statement adopts
FAS 67, AICPA Statement of Position 92-1, Accounting for Real Estate Syndication Income, and AICPA
Statement of Position 92-3, Accounting for Foreclosed Assets. This statement also adopts FAS 152:
Accounting for Real Estate Time-Sharing Transactions, an amendment to FASB Statements No. 66 and
67. FAS 152 is adopted as it modifies previously adopted GAAP guidance in FAS 66 and FAS 67 to
identify the guidance that should/should not be applied to real-estate time-sharing transactions. This
guidance is adopted as it impacts the scope of previous adopted GAAP guidance to prevent an
unnecessary GAAP to SAP difference. However, real-estate time-sharing transactions are considered not
applicable for statutory accounting, and the GAAP guidance in SOP 04-2 is rejected in Issue Paper No.
99.
33.
This statement adopts AICPA Statement of Position 97-1: Accounting by Participating Mortgage
Loan Borrowers (SOP 97-1) regarding the borrower’s accounting for a participating mortgage loan.
34.
This statement rejects paragraph 52 of FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises and Accounting Research Bulletin No. 43, Restatement and Revision of Accounting
Research Bulletins, “Chapter 10, Taxes, Section A—Real Estate and Personal Property Taxes.”
Effective Date and Transition
35.
This statement is effective for years beginning January 1, 2001. A change resulting from the
adoption of this statement shall be accounted for as a change in accounting principle in accordance with
SSAP No. 3—Accounting Changes and Correction of Errors. Guidance in paragraphs 17-19 was
previously included within SSAP No. 77—Real Estate Sales and was effective for years beginning
January 1, 2002. The original guidance included in this standard from SSAP No. 77 is retained for
historical purposes in Issue Paper No. 106. Guidance related to EITF 06-8 referenced in paragraph 28 was
incorporated from INT 08-02: EITF 06-8: Applicability of the Assessment of a Buyer’s Continuing
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Investment under FASB Statement No. 66 for Sales of Condominiums and was effective for periods
beginning May 31, 2008. The guidance reflected in paragraph 28 adopting EITF 07-6: Accounting for the
Sale of Real Estate Subject to the Requirements of FASB Statement No. 66, When the Agreement Includes
a Buy-Sell Clause was incorporated from INT 08-07: EITF 07-6, Accounting for the Sale of Real Estate
Subject to the Requirements of FASB Statement No. 66 When the Agreement Includes a Buy-Sell Clause,
and was effective September 22, 2008.
36.
The substantive revisions to incorporate real estate property investments that are wholly-owned
by an LLC that is directly and wholly owned by the reporting entity in accordance with the criteria
detailed in paragraph 4 are effective as of January 1, 2015. For these investments previously reported
within SSAP No. 48, and owned as of the effective date, the reporting entity shall recognize a cumulative
effect of a change in accounting principle as if the entity had followed this Statement since acquisition of
the property. The change from applying these substantive revisions shall be accounted for as a change in
accounting principle in accordance with SSAP No. 3—Accounting Changes and Corrections of Errors.
37.
To determine statement value for real estate owned through an LLC as of the paragraph 36
effective date, the reporting entity shall:
a.
Allocate the original cost of the real estate investment to land and property other-thanland pursuant to paragraph 8.
b.
To arrive at the current depreciated cost for property (excluding land), the entity shall
apply the depreciation that would have occurred if this statement had been applied since
acquisition, in accordance with the original expected useful life, adjusted for subsequent
capital improvements pursuant to paragraph 16.
c.
The depreciated cost calculated under paragraph 37b shall be compared to a current
appraisal to determine if an impairment assessment is required under SSAP No. 90.
Recognition of impairment shall result in a new cost basis for the property, with
recalculation of the depreciation based on the property’s remaining useful life, as limited
by the terms of this Statement.
d.
The depreciated cost, reflecting any impairment from paragraph 37c, less encumbrances,
shall be recognized as the real estate investment as of the effective date.
REFERENCES
Relevant Issue Papers

Issue Paper No. 23—Property Occupied by the Company

Issue Paper No. 40—Real Estate Investments

Issue Paper No. 106—Real Estate Sales – An Amendment to SSAP No. 40—Real Estate
Investments

Issue Paper No. 149— Wholly-Owned Single Real Estate Property in an LLC
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© 2014 National Association of Insurance Commissioners
40R-10