Issue: FAS 133 EITFs - National Association of Insurance

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Ref #2015-22
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: FAS 133 EITFs
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue:
At the 2015 Spring National Meeting, the Valuation of Securities (E) Task Force referred to the Working
Group a proposal pertaining to the treatment of Catastrophe Linked bonds. This referral is subject to the
understanding that work on the referral shall wait until the Working Group is provided ACLI’s report and
discussion is held among the affected group chairs (related to whether interest in cat bonds by life insurers
merits NAIC consideration of the proposal). (This referral will be addressed in a separate agenda item.)
Although consideration of accounting is pending the ACLI report, staff has reviewed whether guidance
exists in statutory accounting. In reviewing the history, there is reference to EITF 99-2 – Accounting
for Weather Derivatives as adopted with modification in SSAP No. 86. However, in reviewing SSAP
No. 86, there is no reference to the adoption of EITF 99-2. The same treatment was identified for a
variety of EITFs related to FAS 133:
EITF
98-10
98-12
99-01
99-02
99-03
99-8
99-9
00-07
00-09
Name
Accounting for Contracts Involved in Energy Trading and Risk
Management Activities
Application of Issue 00-19 to Forward Equity Sales Transactions
Accounting for Debt Convertible into the Stock of a Consolidated
Subsidiary
Accounting for Weather Derivatives
Application of Issue No. 96-13 to Derivative Instruments with
Multiple Settlement Alternatives
Accounting for Transfers of Assets that are Derivative Instruments
but that are not Financial Assets
Effect of Derivative Gains and Losses on the Capitalization of
Interest
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
Classification of a Gain or Loss from a Hedge of Debt that is
Extinguished
ASC
Superseded –
Not in ASC
Superseded –
Not in ASC
Superseded –
Not in ASC
815-45
Superseded –
Not in ASC
860-10
815-10
815-25
Superseded –
Not in ASC
815-30
Although the ACLI response for CAT bonds is still pending, staff believes that clarification is needed for
the EITFs identified in Appendix D, but not referenced in 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.)
© 2015 National Association of Insurance Commissioners 1
Ref #2015-22
Existing Authoritative Literature:

SSAP No. 86—Accounting for Derivative Instruments and Hedging, Income Generation, and
Replication (Synthetic Asset) Transactions:
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
Trading and Risk Management Activities
98-12
Application of Issue No. 00-19 to Forward Equity
Sales Transactions
99-2
Accounting for Weather Derivatives
99-3
Application of Issue No. 96-13 to Derivative
Instruments with Multiple Settlement Alternatives
99-8
99-9
Accounting for Transfers of Assets that are
Derivative Instruments but that are not Financial
Assets
Effect of Derivative Gains and Losses on the
Capitalization of Interest
© 2015 National Association of Insurance Commissioners 2
Superseded
by EITF
02-3
Complete
Nullified
by FAS
150
Adopt/M
86
Complete
Complete
Adopt/M
Adopt/M
86
86
Complete
Adopt/M
86
Complete
Adopt/M
86
815-10
860-10
Complete
Adopt/M
86
815-25
815-30
460-10
815-45
Codified in
EITF 00-19
Ref #2015-22
00-7
00-9
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
Classification of a Gain or Loss from a Hedge of
Debt That Is Extinguished
Codified in
EITF 00-19
Complete
Adopt/M
86
Complete
Adopt/M
86
815-30
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): None
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 this agenda item requesting comments on the intent of these EITFs. If these were
intended to be adopted in SSAP No. 86, staff will plan to include appropriate references in the
SSAP. If these have not been suitably considered previously, staff will mark them as “pending” in
Appendix D and complete a subsequent agenda item to review and provide a staff recommendation.
Staff Review Completed by:
Josh Arpin – June 2015
Status:
On June 17, 2015, the Statutory Accounting Principles (E) Working Group moved this item to the
nonsubstantive active listing and exposed this agenda item requesting comment on the prior action of the
EITF’s listed above.
G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2015\June 17 SAPWG\A - Exposed Items\15-22 - FAS 133
EITFs.docx
© 2015 National Association of Insurance Commissioners 3
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