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Outside the Control of the Issuer Occur Classification of a Gain or Loss from a Hedge of Debt that is Extinguished ASC Superseded – Not in ASC Superseded – Not in ASC Superseded – Not in ASC 815-45 Superseded – Not in ASC 860-10 815-10 815-25 Superseded – Not in ASC 815-30 Although the ACLI response for CAT bonds is still pending, staff believes that clarification is needed for the EITFs identified in Appendix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