Ref #2011-17
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: Nullify SSAP No. 87 and Incorporate Guidance into SSAP Nos. 4, 19, 29 and 73
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue:
The Statutory Accounting Principles Working Group issued SSAP No. 87—Capitalization Policy, An
Amendment to SSAP Nos. 4, 19, 29, and 73 (SSAP No. 87) in 2004 to adopt substantive revisions that
establish a capitalization policy consistent with statutory concepts.
The guidance within SSAP No. 87 supersedes paragraphs within:

SSAP No. 4—Assets and Nonadmitted Assets (SSAP No. 4),

SSAP No. 19—Furniture, Fixtures and Equipment; Leasehold Improvements Paid by the Reporting
Entity as Lessee; Depreciation of Property and Amortization of Leasehold Improvements (SSAP No. 19),

SSAP No. 29—Prepaid Expenses (SSAP No. 29), and

SSAP No. 73—Health Care Delivery Assets - Supplies, Pharmaceuticals and Surgical Supplies, Durable
Medical Equipment, Furniture, Medical Equipment and Fixtures, and Leasehold Improvements in Health
Care Facilities(SSAP No. 73).
Recent revisions to the AP&P Manual have consolidated information for specific types of transactions into
single SSAPs. Previous guidance in SSAP No. 87 related to SSAP No. 79 and SSAP No. 82 has already been
incorporated into the underlying SSAP. (SSAP No. 16R—Electronic Data Processing Equipment and
Accounting for Software was substantially revised to consolidate statutory accounting guidance for EDP
equipment and software.)
Existing Authoritative Literature:
SSAP No. 87:
2.
In general, this statement amends the phrase “in accordance with the reporting entity's
capitalization policy, immaterial amounts … can be expensed …” to “in accordance with the
reporting entity’s written capitalization policy, amounts less than a predefined threshold …
shall be expensed …”. A predefined threshold shall be established, for each asset class
identified by SSAP Nos. 19, 29, and 73, by management based upon an analysis of
circumstances unique to the entity and shall not be adjusted from period to period except
under extenuating circumstances. If an entity demonstrates a pattern of varying its
capitalization policy from period to period without sufficient evidence as determined by the
reporting entity’s domestic regulator, such action would call into question both the entity's
ability to accurately establish a predefined threshold and the propriety of expensing or
capitalizing certain assets. Accordingly, entities shall expense all immaterial amounts (i.e.,
entity is no longer allowed to establish its own capitalization policy).
3.
This statement amends paragraph 3 of SSAP No. 4 to the following:
© 2011 National Association of Insurance Commissioners 1
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As stated in the Statement of Concepts, "The ability to meet policyholder obligations is
predicated on the existence of readily marketable assets available when both current and
future obligations are due. Assets having economic value other than those which can be used
to fulfill policyholder obligations, or those assets which are unavailable due to encumbrances
or other third party interests should not be recognized on the balance sheet," and are,
therefore, considered nonadmitted. For purposes of statutory accounting principles, a
nonadmitted asset shall be defined as an asset meeting the criteria in paragraph 2 above,
which is accorded limited or no value in statutory reporting, and is one which is:
a.
Specifically identified within the Accounting Practices and Procedures Manual as a
nonadmitted asset; or
b.
Not specifically identified as an admitted asset within the Accounting Practices and
Procedures Manual.
If an asset meets one of these criteria, the asset shall be reported as a nonadmitted asset
and charged against surplus unless otherwise specifically addressed within the Accounting
Practices and Procedures Manual. The asset shall be depreciated or amortized against net
income as the estimated economic benefit expires. In accordance with the reporting entity's
written capitalization policy, amounts less than a predefined threshold of furniture, fixtures,
equipment, or supplies, shall be expensed when purchased.
4.
This statement amends paragraphs 3 and 6 of SSAP No. 19 to the following:
In accordance with the reporting entity's written capitalization policy, amounts less than a
predefined threshold of such assets shall be expensed when purchased.
5.
This statement amends paragraph 3 of SSAP No. 29 to the following:
In accordance with the reporting entity's written capitalization policy, prepaid expenses less
than a predefined threshold shall be expensed when purchased.
6.
This statement amends paragraph 10 of SSAP No. 73 to the following:
In accordance with the reporting entity's written capitalization policy, amounts less than a
predefined threshold of medical supplies, pharmaceuticals and surgical supplies, durable
medical equipment, furniture, medical equipment and fixtures, and leasehold improvements
shall be expensed when purchased.
7.
The reporting entity shall maintain a capitalization policy containing the predefined thresholds
for each asset class to be made available for the department(s) of insurance.
Disclosures
8.
The financial statements shall disclose if the written capitalization policy and the resultant
predefined thresholds changed from the prior period and the reason(s) for such change.
Effective Date and Transition
9.
This statement is effective for years beginning on and after January 1, 2004. Early adoption is
encouraged but not required.
RELEVANT ISSUE PAPERS

Issue Paper No. 119—Capitalization Policy, An Amendment to SSAP Nos. 4, 19, 29, 73, 79
and 82
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups):
© 2011 National Association of Insurance Commissioners 2
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Agenda item #2010-03 (adopted Fall 2010): Previous guidance in SSAP No. 87 related to SSAP No. 79 and
SSAP No. 82 was incorporated into SSAP No. 16R—Electronic Data Processing Equipment and Accounting
for Software. SSAP No. 16R is a substantially revised SSAP that consolidates statutory guidance for EDP
equipment and software. With the adoption of SSAP No. 16R, SSAP No. 79 and SSAP No. 82 were nullified.
Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:
None
Staff Recommendation:
It is staff’s recommendation that the Working Group move this item to the substantive active listing
and expose a substantive revision to nullify SSAP No. 87, and expose revisions to SSAP Nos. 4, 19, 29
and 73 to include the capitalization policy, disclosures and effective date from SSAP No. 87 into these
individual SSAPs. This is considered a substantive issue because SSAP No. 87 will be nullified; however, as
this is strictly a placement change, and the existing guidance is not changing, an issue paper is not considered
necessary. The changes proposed to each of the underlying SSAPs are illustrated below:
Proposed Revisions to SSAP No. 4:
3.
As stated in the Statement of Concepts, "The ability to meet policyholder obligations is
predicated on the existence of readily marketable assets available when both current and future
obligations are due. Assets having economic value other than those which can be used to fulfill
policyholder obligations, or those assets which are unavailable due to encumbrances or other third
party interests should not be recognized on the balance sheet," and are, therefore, considered
nonadmitted. For purposes of statutory accounting principles, a nonadmitted asset shall be defined as
an asset meeting the criteria in paragraph 2 above, which is accorded limited or no value in statutory
reporting, and is one which is:
a.
Specifically identified within the Accounting Practices and Procedures Manual as a
nonadmitted asset; or
b.
Not specifically identified as an admitted asset within the Accounting Practices and
Procedures Manual.
If an asset meets one of these criteria, the asset shall be reported as a nonadmitted asset and
charged against surplus unless otherwise specifically addressed within the Accounting Practices and
Procedures Manual. The asset shall be depreciated or amortized against net income as the estimated
economic benefit expires. In accordance with the reporting entity's written capitalization policy,
amounts less than a predefined threshold of furniture, fixtures, equipment, or supplies, shall be
expensed when purchased.
4.
Transactions which do not give rise to assets as defined in paragraph 2 shall be charged to
operations in the period the transactions occur. Those transactions which result in amounts which
may meet the definition of assets, but are specifically identified within the Accounting Practices and
Procedures Manual as not giving rise to assets (e.g., policy acquisition costs), shall also be charged
to operations in the period the transactions occur.
5.
The reporting entity shall maintain a capitalization policy containing the predefined thresholds
for each asset class to be made available for the department(s) of insurance.
Disclosures
6.
The financial statements shall disclose if the written capitalization policy and the resultant
predefined thresholds changed from the prior period and the reason(s) for such change.
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Relevant Literature
7.
This statement adopts FASB Statement of Financial Accounting Concepts No. 6, Elements of
Financial Statements, paragraphs 25-33.
Effective Date and Transition
8.
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 Corrections of Errors. Guidance reflected in paragraphs
3, 5 and 6, incorporated from SSAP No. 87, was originally effective for years beginning on and after
January 1, 2004.
AUTHORITATIVE LITERATURE
Generally Accepted Accounting Principles

FASB Statement of Financial Accounting Concepts No. 6, Elements of Financial
Statements, paragraphs 25-33
RELEVANT ISSUE PAPERS

Issue Paper No. 4—Definition of Assets and Nonadmitted Assets

Issue Paper No. 119—Capitalization Policy, An Amendment to SSAP Nos. 4, 19, 29,
73, 79 and 82
Proposed Revisions to SSAP No. 19:
3.
In accordance with the reporting entity's written capitalization policy, amounts less than a
predefined threshold of such assets shall be expensed when purchased. The reporting entity shall
maintain a capitalization policy containing the predefined thresholds for each asset class to be made
available for the department(s) of insurance.
6.
In accordance with the reporting entity's written capitalization policy, amounts less than a
predefined threshold of such assets shall be expensed when purchased. The reporting entity shall
maintain a capitalization policy containing the predefined thresholds for each asset class to be made
available for the department(s) of insurance.
New paragraph 15 (all other paragraphs renumbered accordingly)
15.
The financial statements shall disclose if the written capitalization policy and the resultant
predefined thresholds changed from the prior period and the reason(s) for such change.
Effective Date and Transition
19.
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. Guidance reflected in paragraphs 3, 6 and 15, incorporated from SSAP No. 87, was
originally effective for years beginning on and after January 1, 2004.
RELEVANT ISSUE PAPERS

Issue Paper No. 19—Furniture, Fixtures, and Equipment

Issue Paper No. 31—Leasehold Improvements Paid by the Reporting Entity as Lessee

Issue Paper No. 67—Depreciation of Property and Amortization of Leasehold Improvements
© 2011 National Association of Insurance Commissioners 4
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
Issue Paper No. 119—Capitalization Policy, An Amendment to SSAP Nos. 4, 19, 29, 73, 79
and 82
Proposed Revisions to SSAP No. 29:
3.
In accordance with the reporting entity's written capitalization policy, prepaid expenses less
than a predefined threshold shall be expensed when purchased. The reporting entity shall maintain a
capitalization policy containing the predefined thresholds for each asset class to be made available
for the department(s) of insurance.
New paragraph 4 (all other paragraphs renumbered accordingly)
Disclosures
4.
The financial statements shall disclose if the written capitalization policy and the resultant
predefined thresholds changed from the prior period and the reason(s) for such change.
Relevant Literature
5.
This statement rejects AICPA Practice Bulletin No. 13, Direct-Response Advertising and
Probable Future Benefits, AICPA Statement of Position 93-7, Reporting on Advertising Costs and
FASB Emerging Issues Task Force No. 88-23, Lump-Sum Payments under Union Contracts.
Effective Date and Transition
6.
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 Corrections of Errors. Guidance reflected in paragraphs
3, and 4, incorporated from SSAP No. 87, was originally effective for years beginning on and after
January 1, 2004.
RELEVANT ISSUE PAPERS

Issue Paper No. 29—Prepaid Expenses (excluding deferred policy acquisition costs
and other underwriting expenses, income taxes and guaranty fund assessments)

Issue Paper No. 119—Capitalization Policy, An Amendment to SSAP Nos. 4, 19, 29,
73, 79 and 82
Proposed Revisions to SSAP No. 73:
10.
In accordance with the reporting entity's written capitalization policy, amounts less than a
predefined threshold of medical supplies, pharmaceuticals and surgical supplies, durable medical
equipment, furniture, medical equipment and fixtures, and leasehold improvements shall be expensed
when purchased. The reporting entity shall maintain a capitalization policy containing the predefined
thresholds for each asset class to be made available for the department(s) of insurance.
New paragraph 11 (all other paragraphs renumbered accordingly)
Disclosures
11.
The financial statements shall disclose if the written capitalization policy and the resultant
predefined thresholds changed from the prior period and the reason(s) for such change.
Relevant Literature
12.
This statement rejects the AICPA Audit and Accounting Guide: Health Care Organizations.
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Effective Date and Transition
13.
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 Corrections of Errors. Guidance reflected in paragraphs
10 and 11, incorporated from SSAP No. 87, was originally effective for years beginning on and after
January 1, 2004.
14.
Medical supplies, pharmaceuticals and surgical supplies, durable medical equipment,
furniture, medical equipment and fixtures, and leasehold improvements capitalized prior to January 1,
2001 shall be depreciated over the shorter of its remaining useful life or three years.
RELEVANT ISSUE PAPERS

Issue Paper No. 100—Health Care Delivery Assets—Supplies, Pharmaceuticals and
Surgical Supplies, and Durable Medical Equipment

Issue Paper No. 101—Health Care Delivery Assets—Furniture, Medical Equipment
and Fixtures, and Leasehold Improvements in Health Care Facilities

Issue Paper No. 119—Capitalization Policy, An Amendment to SSAP Nos. 4, 19, 29,
73, 79 and 82
Staff Review Completed by:
Julie Gann and Linda Hunsucker – March, 2011
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