facilitation of the effects of referen ce rate reform on ......with a compressed time frame for...

Attachment 1 Ref #2020-12

© 2020 National Association of Insurance Commissioners 1

Statutory Accounting Principles (E) Working Group Maintenance Agenda Submission Form

Form A

Issue: Reference Rate Reform Check (applicable entity): P/C Life Health

Modification of Existing SSAP New Issue or SSAP Interpretation

Description of Issue: The Financial Accounting Standards Board (FASB) issued ASU 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting as a method to ensure that the financial reporting results would continue to reflect the intended continuation of contracts and hedging relationships during the period of the market-wide transition to alternative reference rates – thus, generally not requiring remeasurement or dedesignation if certain criteria are met. Reference rate reform typically refers to the transition away from referencing the London Interbank Offered Rate (LIBOR), and other interbank offered rates (IBORs), and moving toward alternative reference rates that are more observable or transaction based. In July 2017, the governing body responsible for regulating LIBOR announced it would no longer require banks to continue rate submissions after 2021 – thus, likely sunsetting both the use and publication of LIBOR. An important item to note is that while LIBOR is the primary interbank offering rate, other similar rates are potentially affected by reference rate reform. For simplicity, LIBOR will be the sole IBOR referenced throughout this agenda item. With a significant number of financial contracts referencing LIBOR, its discontinuance will require organizations to reevaluate and modify any contract which does not contain a substitute reference rate. A large volume of contracts and other arrangements, such as debt agreements, lease agreements, and derivative instruments, will likely need to be modified to replace all references of interbank offering rates that are expected to be discontinued. While operational, logistical, and legal challenges exist due to the sheer volume of contracts that will require modification, accounting challenges were presented as contract modifications typically require an evaluation to determine whether the modifications result in the establishment of a new contract or the continuation of an existing contract. As is often the case, a change to the critical terms (including reference rate modifications) typically requires remeasurement of the contract, or in the case of a hedging relationship, a dedesignation of the transaction. The overall guidance in ASU 2020-04 is that a qualifying modification (as a result of reference rate reform) should not be considered an event that requires contract remeasurement at the modification date or reassessment of a previous accounting determination. FASB concluded that as reference rate changes are a market-wide initiative, one that is required primarily due to the discontinuance of LIBOR, it is outside the control of an entity and is the sole reason compelling an entity to make modifications to contracts or hedging strategies. As such, FASB determined that the traditional financial reporting requirements of discontinuing such contracts and treating the modified contract as an entirely new contract or hedging relationship would 1) not provide decision-useful information to financial statement users and 2) require a reporting entity to incur significant costs in the financial statement preparation and potentially reflect an adverse financial statement impact, one of which may not accurately reflect the intent or economics of a modification to a contract or hedging transaction. Stakeholders indicated that due to the significant volume of affected contracts and other arrangements, together with a compressed time frame for making contract modifications, the application of existing accounting standards on assessing modifications versus extinguishments could be costly and burdensome and financial reporting results should reflect the intended continuation and true economics of such arrangements. It is important to note this as the



optional, expedient and exceptions guidance provided by the amendments in ASU 2020-04 are applicable for all entities, however, are only effective as of March 12, 2020 through December 31, 2022. Finally, while numerous alternative reference rates are available, the Federal Reserve has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative to LIBOR. SOFR is calculated using actual transactions and is considered a broad measure of the cost of borrowing cash overnight, fully collateralized by risk-free treasury securities. LIBOR, on the other hand, is set by a panel of banks submitting estimates of what they think their borrowing costs are and represents a benchmark rate that leading global banks charge each other for short-term loans, thus incorporating a degree of credit risk into the reference rate. Unlike SOFR, LIBOR is determined by the equilibrium between supply and demand in the funds market. General Principles: For contract modifications, hedging relationships, and other transactions affected by reference rate reform, the amendments provide temporary guidance that achieves the following:

1. Simplifies accounting analyses under current GAAP for contract modifications. 2. Allows hedging relationships to continue without dedesignation upon a change in certain critical terms. 3. Allows a change in the designated benchmark interest rate to a different eligible benchmark interest rate in

a fair value hedging relationship. 4. Suspends the assessment of certain qualifying conditions for fair value hedging relationships for which the

shortcut method for assuming perfect hedge effectiveness is applied. 5. Simplifies or temporarily suspends the assessment of hedge effectiveness for cash flow hedging

relationships. The overall scope is that for the modification of a contract (hedging or other) to be eligible for the accounting exceptions provided in ASU 2020-04, the contract must reference LIBOR, or a reference rate that is expected to be discontinued as a result of reference rate reform. In relation to hedge accounting, without this accounting exception, a change in a contract’s reference rate could disallow the application of certain hedge accounting guidance, and certain hedging relationships may not qualify as highly effective during the period of the market-wide transition to a replacement rate. The inability to apply hedge accounting solely because of reference rate reform would result in financial reporting outcomes that do not reflect entities’ intended hedging strategies when those strategies continue to operate as effective hedges. ASU 2020-04 provides optional expedients that enable reporting entities to continue to apply hedge accounting for hedging relationships in which the critical terms change, but due to reference rate reform may no longer indicate the hedge is effective. The relief is temporary and cannot be applied to contract modifications that occur after December 31, 2022, or hedging relationships initiated or evaluated after that date. This is because the amendments in ASU 2020-04 are intended to provide relief related to the accounting requirements in GAAP due to the effects of the market-wide transition away from IBORs, the relief provided by the amendments is temporary in its application in alignment with the expected market transition period. Contract Modifications: First, the scope of ASU 2020-04 is intended to distinguish contract modifications that occur solely because of reference rate reform from other contract modifications that occur in the ordinary course of business, or for reasons unrelated to reference rate reform. Again, the scope of contract modifications that are eligible for the optional expedience (and not required to be remeasured) shall only include changes that are being made to the terms that include the direct replacement of a reference rate or the potential to replace a reference rate from one variable rate to another variable rate. Other contemporaneously modified terms must also be related to the replacement of a reference rate because of reference rate reform. Solely modifying a term or a refence rate not affected by reference rate reform does not qualify for the expedience or the accounting exceptions provided in this update.



For qualifying contract modifications, the guidance generally allows a reporting entity to account for and report such modifications as an event that does not require the contract termination and remeasurement – thus the modifications are to be reported as a continuation of the existing contract. For the purpose of the amendments in ASU 2020-04, the terms that are permitted to be modified could be those in which affect or have the potential to affect the amount or timing of future cash flows or may include modifications of terms such as fallback provisions in a contract that are triggered upon a contingent event (such as the discontinuance of a reference rate). However, accounting for these changes as a continuation of the existing contract is only allowed if the modifications were required as a result of reference rate reform. Finally, minor contemporaneous changes to terms that do not affect or have the potential to affect the amount or timing of future cash flows are also permitted by ASU 2020-04. For Receivable or Debt Contracts – A reporting entity shall account for the qualified contract modifications as a minor change, resulting in the modification being accounted for prospectively as a continuation of the exiting contract, while using the new reference rate/terms in the agreement. For Leases – A reporting entity shall not reassess the lease classification, remeasure lease payments, or make other assessment, but rather the lease is accounted for prospectively as a continuation of the existing contract. Overall Hedge Accounting: The amendments in ASU 2020-04 provide several exceptions and optional expedients for applying hedge accounting guidance. If certain criteria are met, for hedging relationships, the guidance in ASU 2020-04 allows an entity to change the reference rate and certain other critical terms related to reference rate reform without having to dedesignate the relationship and hedging transaction. Summarized below are the four primary considerations for hedge accounting. Note, the exceptions noted below only relate to critical term changes as a result of reference rate reform. Thus, a contemporaneous change in other terms, not as a result of reference rate reform, does not qualify for the exception and optional expedient guidance herein.

1. For any hedging relationship, upon a change to the critical terms of the hedging relationship, allow a reporting entity to continue hedge accounting rather than dedesignate the hedging relationship.

2. For any hedging relationship, upon a change to the terms of the designated hedging instrument, allow an entity to change its systematic and rational method used to recognize the excluded component into earnings and adjust the fair value of the excluded component through earnings.

3. For fair value hedges, allow a reporting entity to change the designated hedged benchmark interest rate and continue fair value hedge accounting.

4. For cash flow hedges, adjust the guidance for assessment of hedge effectiveness to allow an entity to continue to apply cash flow hedge accounting.

The temporary guidance in ASU 2020-04 only applies to eligible hedging relationships that currently exist or are entered into prior to December 31, 2022. Fair Value Hedges For fair value hedges, in which the designated benchmark interest rate is LIBOR, a reporting entity may change the hedged risk to another permitted benchmark interest rate without dedesignating the relationship, as long as the hedge is expected to remain highly effective in offsetting changes in fair value attributed to the revised hedged risk. The amendments in ASU 2020-04 require that an entity recognize in current earnings any change in fair value attributable to a change in an eligible benchmark interest rate. Current GAAP allows an entity to apply the shortcut method for assessing hedge effectiveness of fair value hedges if certain conditions are met. For fair value hedges applying the shortcut method, the amendments in ASU 2020-04



provide an optional expedient to allow an entity to continue to use the shortcut method if the reference rate in the hedging instrument is replaced by another eligible benchmark interest rate. For an entity that qualifies for and elects to use the optional expedient, the entity would continue to use the shortcut method and recognize the changes in fair value of the hedging instrument as a fair value hedge basis adjustment of the hedged asset or hedged liability. Cash Flow Hedges For a cash flow hedge to qualify for hedge accounting, an entity must assert that the hedged forecasted transaction is probable of occurring. A change in the probability of the forecasted transaction may require that an entity discontinue hedge accounting and may affect the timing of recognizing in current earnings amounts previously deferred in accumulated other comprehensive income. The amendments in ASU 2020-04 clarify that if the designated hedged risk in a hedged forecasted transaction references LIBOR or another rate that is expected to be discontinued because of reference rate reform, an entity may assert that the hedged forecasted transaction remains probable of occurring if the reference rate is replaced with another rate. However, the amendments require that an entity assess whether the underlying hedged forecasted transaction remains probable of occurring. A change to the designated hedged interest rate risk does not require a dedesignation of a cash flow hedge of a forecasted transaction if the hedge is remains highly effective – that is if the entity can assert that the underlying cash flows remain probable, regardless of how the hedged risk and hedged forecasted transaction are documented. Additionally, there may be periods of time during the transition to replacement rates in which a cash flow hedge would not be considered highly effective because of the basis differences between the reference rates in the hedging instrument and the reference rates in the hedged forecasted transaction. In these cases, if a hedging relationship qualifies for cash flow hedge accounting, all changes in the fair value of the derivative designated as the hedging instrument shall be deferred into accumulated other comprehensive income and recognized in earnings when the hedged forecasted transaction affects earnings. Despite the potential of a hedge not being considered highly effective (solely as a result of reference rate reform), the ASU designates that the reporting entity shall not discontinue hedge accounting and dedesignate the hedging transaction. Again, the temporary relief provided cannot be applied to contract modifications after December 31, 2022, or with hedging relationships entered into or evaluated after that date. NAIC Staff Final Hedge Comments: For GAAP purposes, if an entity has not adopted the amendments in ASU 2017-12, Derivatives and Hedging, it is precluded from being able to utilize certain expedients for hedge accounting. Only the hedge documentation requirements were adopted for statutory accounting purposes, while the remainder of the items are still outstanding. For statutory accounting, NAIC staff support allowing all available expedient methods permitted if an entity has elected ASU 2017-12 for GAAP purposes. Other Items: ASU 2020-04 also allows an entity to make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held-to-maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. Note that, debt classification such as held-to-maturity, available-for-sale, or trading are not concepts employed by statutory accounting and thus are not applicable. Existing Authoritative Literature: ASU 2020-04 has affects related to several different Statements of Statutory Accounting Principles, each will be individually addressed.



SSAP No. 15—Debt and Holding Company Obligations NAIC Staff comment – Debt and service agreement modifications as a result of reference rate reform should not rise to the level requiring a reversal and rebooking of the liability. SSAP No. 15, states such liabilities should only be derecognized if extinguished. A reference rate modification should not be interpreted as necessarily requiring re-recognition. Nonetheless, for clarity and consistency with ASU 2020-04, NAIC staff recommend the Working Group adopt this temporary guidance as appropriate for SSAP No. 15.

11. A reporting entity shall derecognize a liability if, and only if, it has been extinguished. A liability has been extinguished if either of the following conditions is met:

a. The reporting entity pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes delivery of cash, other financial assets, goods or services, or reacquisition by the debtor of its outstanding debt securities; or

b. The reporting entity is legally released from being the primary obligor under the liability, either judicially or by the creditor.

15. Modifications to or exchanges of line-of-credit or revolving-debt arrangements, including the accounting for unamortized costs at the time of the change, fees paid to or received from the creditor and third-party costs incurred shall be expensed when incurred.

SSAP No. 22R—Leases NAIC Staff comment – lease modifications, solely caused by reference rate reform and ones eligible for optional expedience (modifications only being made to the terms that include the direct replacement of a reference rate or the potential to replace a reference rate from one variable rate to another variable rate) likely do not rise to the level of a modification requiring recognition as a new lease under statutory accounting. SSAP No. 22R, paragraph 17 states only modifications in which grant the lessee additional rights shall be accounted for as a new lease. These changes are outside the scope allowed for optional expedience in ASU 2020-04. Nonetheless, for clarity and consistency with ASU 2020-04, NAIC staff recommend the Working Group adopt this temporary guidance as appropriate for SSAP No. 22R.

Modification

17. An entity shall account for a modification to a contract as a separate contract (that is, separate from the original contract) when both of the following conditions are present:

The modification grants the lessee an additional right of use not included in the original lease (for example, the right to use an additional asset).

The lease payments increase commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract. For example, the standalone price for the lease of one floor of an office building in which the lessee already leases other floors in that building may be different from the standalone price of a similar floor in a different office building, because it was not necessary for a lessor to incur costs that it would have incurred for a new lessee.

18. An entity shall account for initial direct costs, lease incentives and any other payments made to or by the entity in connection with a modification to a lease in the same manner as those items would be accounted for in connection with a new lease.

Accounting and Reporting by Lessees

19. All leases shall be considered operating leases, which means that rental expense is recognized over the lease term, without recognition of a right-to-use asset or lease liability. Rent on operating leases, reflecting all lease considerations in paragraph 20, shall be charged to expense on a straight-line basis



over the lease term. Statutory accounting rejects the recognition of a right-to-use lease asset and the associated lease liabilities.

20. The consideration in the contract for a lessee includes all of the following payments that will be made during the lease term:

Any fixed payments (for example, monthly service charges) or in substance fixed payments, less any incentives paid or payable to the lessee.

Any other variable payments that depend on an index or a rate, initially measured using the index or rate at the commencement date.

SSAP No. 86—Derivatives NAIC Staff comment – The modifications in ASU 2020-04 most primarily address hedge accounting and the allowance for a reporting entity to change the reference rate and other critical terms related to reference rate reform without having it dedesignate the hedging relationship. While alternative benchmark interest rates were previously addressed in agenda item 2018-46 – Benchmark Interest Rate, the accounting for hedged transactions is noted below, with applicable areas bolded for emphasis.

Relevant/Applicable of Overview of existing SAP Accounting – SSAP No. 86

12. “Benchmark Interest Rate” is a widely recognized and quoted rate in an active financial market that is broadly indicative of the overall level of interest rates attributable to high-credit-quality obligors in that market. It is a rate that is widely used in a given financial market as an underlying basis for determining the interest rates of individual financial instruments and commonly referenced in interest-rate-related transactions. In theory, the benchmark interest rate should be a risk-free rate (that is, has no risk of default). In some markets, government borrowing rates may serve as a benchmark. In other markets, the benchmark interest rate may be an interbank offered rate. In the United States, the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the Fed Funds Effective Rate Overnight Index Swap Rate, the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate, and the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate are considered to be benchmark interest rates.

Derivatives Used in Hedging Transactions

20. Derivative instruments used in hedging transactions that meet the criteria of a highly effective hedge shall be considered an effective hedge and are permitted to be valued and reported in a manner that is consistent with the hedged asset or liability (referred to as hedge accounting). For instance, assume an entity has a financial instrument on which it is currently receiving income at a variable rate but wishes to receive income at a fixed rate and thus enters into a swap agreement to exchange the cash flows. If the transaction qualifies as an effective hedge and a financial instrument on a statutory basis is valued and reported at amortized cost, then the swap would also be valued and reported at amortized cost. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge, or that meet the required criteria but the entity has chosen not to apply hedge accounting, shall be accounted for at fair value and the changes in the fair value shall be recorded as unrealized gains or unrealized losses (referred to as fair value accounting).

21. Entities shall not bifurcate the effectiveness of derivatives. A derivative instrument is either classified as an effective hedge or an ineffective hedge. Entities must account for the derivative using fair value accounting if it is deemed to be ineffective or becomes ineffective. Entities may redesignate a derivative in a hedging relationship even though the derivative was used in a previous hedging relationship that proved to be ineffective. A change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument. An entity shall prospectively discontinue hedge accounting for an existing hedge if any one of the following occurs:

a. Any criterion in paragraphs 24-36 is no longer met;



b. The derivative expires or is sold, terminated, or exercised (the effect is recorded as realized gains or losses or, for effective hedges of firm commitments or forecasted transactions, in a manner that is consistent with the hedged transaction – see paragraph 22);

c. The entity removes the designation of the hedge; or

d. The derivative is deemed to be impaired in accordance with paragraph 17. A permanent decline in a counterparty’s credit quality/rating is one example of impairment required by paragraph 17, for derivatives used in hedging transactions.

22. For those derivatives which qualify for hedge accounting, the change in the carrying value or cash flow of the derivative shall be recorded consistently with how the changes in the carrying value or cash flow of the hedged asset, liability, firm commitment or forecasted transaction are recorded. Upon termination of a derivative that qualified for hedge accounting, the gain or loss shall adjust the basis of the hedged item and be recognized in income in a manner that is consistent with the hedged item (alternatively, if the item being hedged is subject to IMR, the gain or loss on the hedging derivative may be realized and shall be subject to IMR upon termination.) Entities who choose the alternative method shall apply it consistently thereafter.

Activity to Date (issues previously addressed by the Working Group, Emerging Accounting Issues (E) Working Group, SEC, FASB, other State Departments of Insurance or other NAIC groups): Agenda item 2018-46 – Benchmark Interest Rate, incorporated revisions to SSAP No. 86, adding the Securities Industry and Financial Markets (SIFMA) Municipal Swap Rate and the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as acceptable benchmark interest rates for hedge accounting. Prior to this change, only LIBOR and the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate) were considered acceptable benchmark interest rates. Information or issues (included in Description of Issue) not previously contemplated by the Working Group: N/A Convergence with International Financial Reporting Standards (IFRS): IFRS has taken a similar approach when considering Reference Rate Reform’s impact on IFRS 9 (Financial Instruments), IAS 39 (Recognition and Measurement), and IFRS 7 (Financial Instruments – Disclosures). Staff Recommendation: Staff recommends that the Working Group move this item to the active listing, categorized as nonsubstantive and expose temporary (optional) expedient and exception interpretative guidance, with a sunset date of December 31, 2022. These optional expedients would allow entities (under certain circumstances) to avoid having to remeasure contracts or reassess a previous accounting determination for hedged items. With this guidance, reporting entities would be allowed to make specific contract modifications and account for them on a prospective basis. Further, entities would be allowed to continue applying hedge accounting for hedging relationships affected by reference rate reform. Note: NAIC staff support adoption of this ASU, with the only modification related to the option to sell debt currently classified held-to-maturity. This concept is not employed by statutory accounting and thus is not applicable. The proposed extension temporarily overrides guidance in SSAP No. 15, SSAP No. 22R and SSAP No. 86 for affected policies, therefore the policy statement in Appendix F requires 2/3rd (two-thirds) of the Working Group members to be present and voting and a supermajority of the Working Group members present to vote in support of the interpretation before it can be finalized. Feedback is requested from regulators if a disclosure of the volume of contracts affected by LIBOR would be beneficial. While ASU 2020-04 did not contain significant disclosure requirements, the results of any SAP disclosure would not be able to ascertain the magnitude of the contract value affected by electing the optional expedient and exception guidance, however, could contain the items such as contact count and notional value.



Staff Review Completed by: Jim Pinegar, NAIC Staff – March 2020 Status: On March 26, 2020, the Statutory Accounting Principles (E) Working Group conducted an email vote to expose INT 20-01T: ASU 2020-04 - Reference Rate Reform G:\FRS\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2020\4-15-20 - INTs\1 - 20-12 Reference Rate Reform.docx

Attachment 2

INT 20-01T

20-01T-1

Interpretation of the Statutory Accounting Principles (E) Working Group

INT 20-01T: ASU 2020-04 - Reference Rate Reform

INT 20-01T Dates Discussed

Email Vote to Expose March 26, 2020

INT 20-01T References

Current:

SSAP No. 15—Debt and Holding Company Obligations

SSAP No. 22R—Leases

SSAP No. 86—Derivatives

This INT applies to all SSAPs with contracts within scope of ASU 2020-04, which allows for modifications

due to reference rate reform and provides for the optional expedient to be accounted for as a continuation

of the existing contract.

INT 20-01T Issue

1. This interpretation has been issued to provide statutory accounting and reporting guidance for the

adoption with modification of ASU 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the

Effects of Reference Rate Reform on Financial Reporting for applicable statutory accounting principles.

The Financial Accounting Standards Board (FASB) issued ASU 2020-04 in March 2020 as optional,

transitional and expedient guidance as a result of reference rate reform.

2. Reference rate reform typically refers to the transition away from referencing the London Interbank

Offered Rate (LIBOR), and other interbank offered rates (IBORs), and moving toward alternative reference

rates that are more observable or transaction based. In July 2017, the governing body responsible for

regulating LIBOR announced it will no longer require banks to continue LIBOR submissions after 2021 –

likely sunsetting both the use and publication of LIBOR. An important note is that while LIBOR is the

primary interbank offering rate, other similar rates are potentially affected by reference rate reform.

3. With a significant number of financial contracts solely referencing IBORs, their discontinuance

will require organizations to reevaluate and modify any contract that does not contain a substitute reference

rate. A large volume of contracts and other arrangements, such as debt agreements, lease agreements, and

derivative instruments, will likely need to be modified to replace all references of interbank offering rates

that are expected to be discontinued. While operational, logistical, and legal challenges exist due to the

sheer volume of contracts that will require modification, accounting challenges were presented as contract

modifications typically require an evaluation to determine whether the modifications result in the

establishment of a new contract or the continuation of an existing contract. As is often the case, a change

to the critical terms (including reference rate modifications) typically requires remeasurement of the

contract, or in the case of a hedging relationship, a dedesignation of the transaction.

4. The overall guidance in ASU 2020-04 is that a qualifying modification (as a result of reference rate

reform) should not be considered an event that requires contract remeasurement at the modification date or

reassessment of a previous accounting determination. FASB concluded that as reference rate changes are a

market-wide initiative, one that is required primarily due to the discontinuance of LIBOR, it is outside the

control of an entity and is the sole reason compelling an entity to make modifications to contracts or hedging

strategies. As such, FASB determined that the traditional financial reporting requirements of discontinuing

such contracts and treating the modified contract as an entirely new contract or hedging relationship would

1) not provide decision-useful information to financial statement users and 2) require a reporting entity to

incur significant costs in the financial statement preparation and potentially reflect an adverse financial

Attachment 2 INT 20-01T Appendix B

20-01-2

statement impact, one of which may not accurately reflect the intent or economics of a modification to a

contract or hedging transaction.

5. Guidance in ASU 2020-04 allows a method to ensure that the financial reporting results would

continue to reflect the intended continuation of contracts and hedging relationships during the period of the

market-wide transition to alternative reference rates – thus, generally not requiring remeasurement or

dedesignation if certain criteria are met.

6. The optional, expedient and exceptions guidance provided by the amendments in ASU 2020-04 are

applicable for all entities. However, they are only effective as of March 12, 2020 through December 31,

2022. This is because the amendments in ASU 2020-04 are intended to provide relief related to the

accounting requirements in generally accepted accounting principles (GAAP) due to the effects of the

market-wide transition away from IBORs., Tthe relief provided by the amendments is temporary in its

application in alignment with the expected market transition period. However, the FASB will monitor the

market-wide IBOR transition to determine whether future developments warrant any changes, including

changes to the end date of the application of the amendments in this ASU. If such an update occurs, the

Working Group may also consider similar action. It is not expected that the Working Group will take action

prior to or in the absence of a FASB amendment.

7. The accounting issues are:

Issue 1: Should a reporting entity interpret the guidance in ASU 2020-04 as broadly

accepted for statutory accounting?

Issue 2: Should the optional, expedient and exception guidance in ASU 2020-04 apply to

debt and other service agreements addressed in SSAP No. 15?


lease transactions addressed in SSAP No. 22R?


derivative transactions addressed in SSAP No. 86?

INT 20-01T Discussion

8. For Issue 1, the Working Group came to the tentative consensus that ASU 2020-04 shall be adopted,

to include the same scope of applicable contracts or transactions for statutory accounting with the only

minor modifications related to a concept not utilized by statutory accounting, as noted below. The Working

Group tentatively agreed the amendments provide appropriate temporary guidance that alleviate the

following concerns due to reference rate reform:

a. Simplifies accounting analyses under current GAAP and statutory accounting principles

(SAP) for contract modifications.

i. All contracts within scope of ASU 2020-04, which allows for modifications due to

reference rate reform and provides for the optional expedient to be accounted for as

a continuation of the existing contract.

b. Allows hedging relationships to continue without dedesignation upon a change in certain

critical terms.

c. Allows a change in the designated benchmark interest rate to a different eligible benchmark

interest rate in a fair value hedging relationship.

d. Suspends the assessment of certain qualifying conditions for fair value hedging

relationships for which the shortcut method for assuming perfect hedge effectiveness is

applied.

e. Simplifies or temporarily suspends the assessment of hedge effectiveness for cash flow

hedging relationships.

Attachment 2 ASU 2020-04 - Reference Rate Reform INT 20-01T

20-01-3

f. The only SAP modification to this ASU is related to the option to sell debt currently

classified held-to-maturity. This concept is not employed by statutory accounting and thus

is not applicable.

9. For Issue 2, the Working Group came to the tentative consensus that debt and service agreement

modifications, as a result of reference rate reform, should not typically rise to the level of requiring a

reversal and rebooking of the liability, as SSAP No. 15 states such liabilities should only be derecognized

if extinguished. A reference rate modification should not generally require de-recognition and re-

recognition under statutory accounting. Nonetheless, for clarity and consistency with ASU 2020-04, the

Working Group came to the tentative consensus that should an eligible contract be affected by reference

rate reform, then the temporary guidance in ASU 2020-04 shall apply.

10. For Issue 3, the Working Group came to the tentative consensus that lease modifications, solely

caused by reference rate reform and ones eligible for optional expedience, likely do not rise to the level of

a modification requiring re-recognition as a new lease under statutory accounting. SSAP No. 22R,

paragraph 17 states only modifications in which grant the lessee additional rights shall be accounted for as

a new lease. These changes are outside the scope allowed for optional expedience in ASU 2020-04.

Nonetheless, for clarity and consistency with ASU 2020-04, the Working Group came to a tentative

consensus that if an eligible lease affected by reference rate reform, then the temporary guidance in ASU

2020-04 shall apply.

11. For Issue 4, the Working Group came to the tentative consensus that ASU 2020-04 shall be applied

to derivative transactions as the following considerations provided in the ASU are appropriate for statutory

accounting:

a. For any hedging relationship, upon a change to the critical terms of the hedging

relationship, allow a reporting entity to continue hedge accounting rather than dedesignate

the hedging relationship.

b. For any hedging relationship, upon a change to the terms of the designated hedging

instrument, allow an entity to change its systematic and rational method used to recognize

the excluded component into earnings and adjust the fair value of the excluded component

through earnings.

c. For fair value hedges, allow a reporting entity to change the designated hedged benchmark

interest rate and continue fair value hedge accounting.

d. For cash flow hedges, adjust the guidance for assessment of hedge effectiveness to allow

an entity to continue to apply cash flow hedge accounting.

12. Additionally, for GAAP purposes, if an entity has not adopted the amendments in ASU 2017-12,

Derivatives and Hedging, it is precluded from being able to utilize certain expedients for hedge accounting.

For statutory accounting purposes, only the hedge documentation requirements were adopted from ASU

2017-12, while the remainder of the items are pending statutory accounting review. The Working Group

tentatively concluded that all allowed expedient methods are permitted as elections for all reporting entities

under statutory accounting. However, if a reporting entity is a U.S. GAAP filer, the reporting entity may

only make elections under ASU 2017-12 if such elections were also made for their U.S. GAAP financials.

INT 20-01T Status

13. Further discussion is planned of this interpretation and the related agenda item (Ref 2020-12).

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(Reference Rate Reform).docx

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Attachment 3

INT 20-02T

20-02T-1

Interpretation of the Statutory Accounting Principles Working Group

INT 20-02T: Extension of Ninety-Day Rule for the Impact of COVID-19




SSAP No. 6—Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due

From Agents and Brokers (SSAP No. 6)

SSAP No. 47—Uninsured Plans (SSAP No. 47)

SSAP No. 51—Life Contracts (SSAP No. 51)

SSAP No. 65—Property and Casualty Contracts (SSAP No. 65)

INT 20-02T Issue

1. A previously unknown virus began transmitting between October 2019 and March 2020,

with the first deaths in the U.S. reported in early March 2020. The disease caused by the virus is

known as Coronavirus Disease 2019 (COVID-19). Several states and cities have issued “stay

home” orders and forced all non-essential businesses to temporarily close. This has led to a

significant increase in unemployment and, in certain states, mandatory closure of many

businesses. Total economic damage is still being assessed however, the total impact is likely to

exceed $1 trillion in the U.S. alone. This interpretation is intended to cover policies impacted by

COVID-19.

2. Should a temporary extension of the 90-day rule, extending the nonadmission guidance

for premium receivables due from policyholders or agents and for amounts due from

policyholders for high deductible policies, and for uncollected uninsured plan receivables

(excluding Medicare and similar government plans) to September 28, 2020 be granted for the

March 31st and June 30th, 2020 (1st and 2nd quarter) financial statements, for policies in U.S.

jurisdictions that have been impacted by COVID-19 be granted?


3. The Working Group reached a tentative consensus for a one-time optional extension of

the ninety-day rule for uncollected premium balances, bills receivable for premiums and amounts

due from agents and policyholders and for amounts due from policyholders for high deductible

policies and amounts due from non-government uninsured plans, as follows:

a. For policies in effect and current prior to the date as of the declaration of a state

of emergency by the U.S. federal government on March 13, 2020 and policies

written or renewed after March 13, insurers may follow the timeline described in

paragraph 5wait until September 28, 2020 before nonadmitting premiums

receivable from policyholders or agents as required per SSAP No. 6, paragraph 9.

b. For uncollected uninsured plan receivables (excluding Medicare and similar

government plans) which were current prior to the date of the declaration of a

state of emergency by the U.S. federal government on March 13, 2020, insurers

may follow the timeline described in paragraph 5 before nonadmitting these

balances as required per SSAP No. 47, paragraph 10.a.

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c. For life premium due and uncollected which were current prior to the date of the

declaration of a state of emergency by the U.S. federal government on March 13,

2020, and policies written or renewed after March 13, insurers may follow the

timeline described in paragraph 5 before nonadmitting these balances as required

per SSAP No. 51R, paragraph 12.

b.d. For high deductible policies in effect and current prior to the date as of the


2020, insurers may follow the timeline described in paragraph 5wait until

September 28, 2020 before nonadmitting amounts due from policyholders for

high deductible policies as required per SSAP No. 65, paragraph 37.

c.e. Existing impairment analysis remains in effect for these affected policies.

4. The Working Group noted that a 60-day extension had been granted previously for

regionally significant catastrophes, including INT 13-01: Extension of Ninety-Day Rule for the

Impact of Hurricane/Superstorm Sandy; and INT 05-04: Extension of Ninety-day Rule for the

Impact of Hurricane Katrina, Hurricane Rita and Hurricane Wilma, INT 17-01: Extension of

Ninety-Day Rule for the Impact of Hurricane Harvey, Hurricane Irma and Hurricane Maria, and

INT 18-04: Extension of Ninety-Day Rule for the Impact of Hurricane Florence and Hurricane

Michael. This recommendation is for a longer period than the extensions that have been granted

in the past as COVID-19 is a nationally significant event due to the expected overall impact to the

U.S. economy.

5. Due to the short-term nature of the applicability of this extension, which is only

applicable for the March 31st and June 30th, 2020 (1st and 2nd quarter) financial statements and

only for the categories of assets listed in paragraph 3which expires September 28, 2020, this

interpretation will be publicly posted on the Statutory Accounting Principles (E) Working

Group’s website. This INT will allow assets that meet the definition of paragraph 3 to be admitted

assets even if they are greater than 90 days past due. As the exceptions provided in this

interpretation are not applicable in the September 30, 2020 (3rd quarter) financial statements, this

interpretation will automatically expire as of September 29, 2020. This interpretation will be

automatically nullified on September 29, 2020 and will be included as a nullified INT in

Appendix H – Superseded SSAPs and Nullified Interpretations in the “as of March 2021”

Accounting Practices and Procedures Manual.

INT 20-02T Status

6. Further discussion is planned.

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INT 20-03T: Troubled Debt Restructuring Due to COVID-19




• SSAP No. 36—Troubled Debt Restructuring

INT 20-03T Issue




home” orders and forced all non-essential businesses to temporarily close. This led to a significant

increase in unemployment and the potential permanent closure of many businesses. Total economic

damage is still being assessed however the total impact is likely to exceed $1 trillion in the U.S.

alone.

2. In response to COVID-19, Congress and Federal and state prudential banking regulators

have considered provisions pertaining to mortgage loans as a result of the effects of the COVID-

19. These provisions are intended to be applicable for the term of the loan modification, but solely

with respect to a modification, including a forbearance arrangement, an interest rate modification,

a repayment plan, and any other similar arrangement that defers or delays the payment of principal

or interest, that occurs during the applicable period for a loan that was not more than 30 days past

due as of December 31, 2019.

3. Furthermore, guidance has been issued by the Financial Condition (E) Committee to all

U.S. insurers filing with the NAIC in an effort to encourage insurers to work with borrowers who

are unable to, or may become unable to meet their contractual payment obligations because of the

effects of COVID-19. As detailed in that guidance, the Committee, which is the NAIC parent

committee of all the solvency policy making task forces and working groups of the NAIC, supports

the use of prudent loan modifications that can mitigate the impact of COVID-19.

4. This interpretation considers the interagency guidance issued by Federal and state

prudential banking regulators on March 22, 2020 addressing whether the modification of mortgage

loan or bank loan terms in response to COVID-19 shall be considered a troubled debt restructuring.


5. SSAP No. 36—Troubled Debt Restructuring provides guidance, predominantly adopted

from U.S. GAAP, in determining whether a debt restructuring is considered a troubled debt

restructuring. Additionally, SSAP No. 36 provides accounting and disclosure guidance when a

troubled debt restructuring has been deemed to occur. Pursuant to existing guidance in SSAP No.

36, a debt restructuring is not necessarily considered a troubled debt restructuring and a creditor

must assess whether the debtor is experiencing financial difficulties. The guidance also indicates

that a delay in payment that is insignificant is not a concession

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6. On March 22, 2020, the Federal and state prudential banking regulators issued a joint

statement that included guidance on their approach to the accounting for loan modifications in light

of the economic impact of the coronavirus pandemic. The guidance was developed in consultation

with the staff of the FASB who concur with the approach and indicated that they stand ready to

assist stakeholders with any questions. This interagency statement is provided below and is

accessible through the FASB response via the following link:

https://fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174374016&pagename=FASB%2FFASBConte

nt_C%2FNewsPage

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB),and the State Banking Regulators (hereafter, the agencies), are issuing this interagency statement to provide additional information to financial institutions who are working with borrowers affected by the Coronavirus Disease 2019 (also referred to as COVID-19). The United States has been operating under a presidentially declared emergency since March 13, 2020, and financial institutions and their customers are affected by COVID-19. The agencies understand that this unique and evolving situation could pose temporary business disruptions and challenges that affect banks, credit unions, businesses, borrowers, and the economy. The agencies will continue to communicate with the industry as this situation unfolds, including through additional statements, webinars, frequently asked questions, and other means, as appropriate.

Working with Customers The agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. The agencies view loan modification programs as positive actions that can mitigate adverse affects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID19 related loan modifications as troubled debt restructurings (TDRs). The agencies will not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. The agencies consider such proactive actions to be in the best interest of institutions, their borrowers, and the economy. This approach is consistent with the agencies’ longstanding practice of encouraging financial institutions to assist borrowers in times of natural disaster and other extreme events. The agencies also will not criticize institutions that work with borrowers as part of a risk mitigation strategy intended to improve an existing non-pass loan.

Accounting for Loan Modifications Modifications of loan terms do not automatically result in TDRs. According to U.S. GAAP, a restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

https://fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174374016&pagename=FASB%2FFASBContent_C%2FNewsPage

https://fasb.org/cs/Satellite?c=FASBContent_C&cid=1176174374016&pagename=FASB%2FFASBContent_C%2FNewsPage

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Working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program. Modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of ASC 310-40, e.g., a state program that requires all institutions within that state to suspend mortgage payments for a specified period. The agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers. In addition, the FRB, the FDIC, and the OCC note that efforts to work with borrowers of one-to four family residential mortgages as described in the modification section of this document, where the loans are prudently underwritten, and not past due or carried in nonaccrual status, will not result in the loans being considered restructured or modified for the purposes of their respective risk-based capital rules.

Past Due Reporting With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal loan documents. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due, and these loans are not considered past due during the period of the deferral. Nonaccrual Status and Charge-offs Each financial institution should refer to the applicable regulatory reporting instructions, as well as its internal accounting policies, to determine if loans to stressed borrowers should be reported as nonaccrual assets in regulatory reports. However, during the short-term arrangements discussed in this statement, these loans generally should not be reported as nonaccrual. As more information becomes available indicating a specific loan will not be repaid, institutions should refer to the charge-off guidance in the instructions for the Consolidated Reports of Condition and Income. Discount Window Eligibility Institutions are reminded that loans that have been restructured as described under this statement will continue to be eligible as collateral at the FRB’s discount window based on the usual criteria.

7. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and

Economic Security Act (CARES Act). The provisions in Section 4013 specifically address

temporary relief from troubled debt restructurings:

SEC. 4013. TEMPORARY RELIEF FROM TROUBLED DEBT RESTRUCTURINGS.

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(a) DEFINITIONS.—In this section:

(1) APPLICABLE PERIOD.—The term ‘‘applicable period’’ means the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates.

(2) APPROPRIATE FEDERAL BANKING AGENCY.—The term ‘‘appropriate Federal banking agency’’— (A) has the meaning given the term in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and (B) includes the National Credit Union Administration.

(b) SUSPENSION.—

(1) IN GENERAL.—During the applicable period, a financial institution may elect to— (A) suspend the requirements under United States generally accepted accounting principles for loan modifications related to the coronavirus disease 2019 (COVID–19) pandemic that would otherwise be categorized as a troubled debt restructuring; and (B) suspend any determination of a loan modified as a result of the effects of the coronavirus disease 2019 (COVID–19) pandemic as being a troubled debt restructuring, including impairment for accounting purposes.

(2) APPLICABILITY.—Any suspension under paragraph (1)—

(A) shall be applicable for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and

(B) shall not apply to any adverse impact on the credit of a borrower that is not related to the coronavirus disease 2019 (COVID–19) pandemic.

(c) DEFERENCE.—The appropriate Federal banking agency of the financial institution shall defer to the determination of the financial institution to make a suspension under this section.

(d) RECORDS.—For modified loans for which suspensions under subsection (a) apply—

(1) financial institutions should continue to maintain records of the volume of loans involved; and

(2) the appropriate Federal banking agencies may collect data about such loans for supervisory purposes.

INT 20-03T Tentative Consensus

7.8. The Working Group reached a tentative consensus to clarify that a modification of

mortgage loan or bank loan terms in response to COVID-19 shall follow the provisions detailed in

the March 22, 2020 “Interagency Statement on Loan Modifications and Reporting for Financial

Institutions Working with Customers Affected by the Coronavirus” (detailed in paragraph 6) and

the provisions of the CARES Act (detailed in paragraph 7) in determining whether the modification

shall be reported as a troubled debt restructuring within SSAP No. 36.

8.9. This interpretation is effective for the specific purpose to address loan modifications in

response to COVID-19. This interpretation will be considered for nullification when no longer

applicable. Consistent with the CARES act, this interpretation is only applicable for the term of the

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loan modification, but solely with respect to any modification, including a forbearance

arrangement, interest rate modification, a repayment plan and other similar arrangement that defer

or delays the payment of principal or interest for a loan that was not more than 30 days past due as

of December 31, 2019. As determined in the CARES Act, this interpretation will only be applicable

for the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, or the

date that is 60 days after the date on which the national emergency concerning the novel coronavirus

disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National

Emergencies Act (50 U.S.C. 1601 et seq.) terminates.

INT 20-03T Status

9.10. Further discussion is planned.

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for COVID-19.docx

Attachment 5

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20-04T-1


INT 20-04T: Mortgage Loan Impairment Assessment Due to COVID-19




• SSAP No. 26R—Bonds

• SSAP No. 30—Common Stock

• SSAP No. 37—Mortgage Loans

• SSAP No. 43R—Loan-backed and Structured Securities

• SSAP No. 48—Joint Ventures, Partnerships and Limited Liability Companies

INT 20-04T Issue




home” orders and forced all non-essential businesses to temporarily close. This led to a

significant increase in unemployment and the potential permanent closure of many businesses.

Total economic damage is still being assessed however the total impact is likely to exceed $1

trillion in the U.S. alone.

2. In response to COVID-19, Congress and Federal and state prudential banking regulators

have considered provisions pertaining to mortgage loans as a result of the effects of the COVID-

19. While primarily related to mortgage loans, Tthese provisions are intended to be applicable for

the term of athe loan modification, but solely with respect to a modification, including a

forbearance arrangement, an interest rate modification, a repayment plan, and any other similar

arrangement that defers or delays the payment of principal or interest, that occurs during the

applicable period for a loan that was not more than 30 days past due as of December 31, 2019.

3. Furthermore, guidance has been issued by the Financial Condition (E) Committee to all

U.S. insurers filing with the NAIC in an effort to encourage insurers to work with borrowers who

are unable to, or may become unable to meet their contractual payment obligations because of the

effects of COVID-19. As detailed in that guidance, the Committee, which is the NAIC parent

committee of all the solvency policy making task forces and working groups of the NAIC,

supports the use of prudent loan modifications that can mitigate the impact of COVID-19.

4. This interpretation intends to address the impact of mortgage loan forbearance or prudent

modifications on the statutory accounting and reporting requirements for bank loans, mortgage

loans, as well as investments with underlying mortgage loans. Particularly, this interpretation

considers whether a temporary, limited-time statutory exception for the assessment of impairment

shall be granted for bank loans, mortgage loans and investment products with underlying

mortgage loans. This exception would only defer the assessment of impairment due to situations

caused by the forbearance or modification of mortgage loan payments and would not delay the

recognition of other than temporary impairments if the entity made a decision to sell the

investment and/or if provisions other than the limited-time forbearance or modifications of

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mortgage loans payments caused the entity to identify that they would not recover the reported

carrying value of the investment.


5. Although a variety of structures have the potential to be impacted by the economic

stimulus provisions, this interpretation is limited to investments specifically identified. Except for

the specific inclusion of bank loans, Tthis interpretation does not include investments captured in

scope of SSAP No. 26R—Bonds or investments captured in the identified standards that are not

predominantly impacted by underlying mortgage loans with forbearance or modification

provisions in response to COVID-19. Investments in scope of this interpretation include:

a. SSAP No. 26R—Bonds: Bank loans in scope of SSAP No. 26R

b. SSAP No. 37—Mortgage Loans: All mortgage loans in scope of SSAP No. 37.

c. SSAP No. 30—Common Stock: SEC registered investments with underlying mortgage

loans (e.g., mortgage-backed mutual funds).

d. SSAP No. 43R—Loan-backed and Structured Securities: Securities in scope of SSAP No.

43R with underlying mortgage loans. This includes residential and commercial mortgage

backed securities (RMBS & CMBS), and credit risk transfers (CRTs) issued through

government sponsored enterprises (GSEs). Other investments in scope of SSAP No. 43R

are also captured within this interpretation if the underlying investments predominantly

reflect mortgage loan products.

e. SSAP No. 48—Joint Ventures, Partnerships and Limited Liabilities Companies:

Investments in scope of SSAP No. 48 that have underlying characteristics of mortgage

loans. These investments could include private equity mortgage loan funds.

Bank Loans

6. Bank loans, if meeting certain parameters, are in scope of SSAP No. 26R—Bonds. Bank

loans per SSAP No. 26R, are defined as fixed-income instruments, representing indebtedness of a

borrower, made by a financial institution. Bank loans can be issued directly by a reporting entity

or acquired through an assignment, participation or syndication. The guidance in SSAP No. 26R

states an other-than-temporary impairment shall be considered to have occurred it if is probable

the reporting entity will be unable to collect amounts due according the contract terms of a debt

security in effect at the date of issue/acquisition. The measurement of the impairment loss shall

not include partial recoveries of fair value subsequent to the balance sheet date. The impairment

guidance applicable to bank loans states that if it is probable or if repayment does not occur

according to the terms of the original contract (i.e. payment timing and amounts), an impairment

shall be considered to have occurred.

Mortgage Loans

6.7. Mortgage loans are in scope of SSAP No. 37—Mortgage Loans and reported on Schedule

B: Mortgage Loans. The guidance in SSAP No. 37, paragraph 16 identifies that a mortgage loan

shall be considered impaired when mortgage loan payments are not received in accordance with

the contractual terms of the mortgage agreement. As such, a deference or modification of

mortgage loan payments (whether interest or principal) would ordinarily trigger an impaired

classification and require impairment assessment under SSAP No. 37.The guidance in SSAP No.

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37 utilizes a valuation allowance to recognize unrealized losses from impairment assessments and

permits subsequent reversals of unrealized losses reflected in the valuation allowance based on

subsequent assessments. If an impairment is deemed other than temporary, the unrealized loss is

realized without the potential for subsequent recoveries.

SEC Registered Funds with Underlying Mortgage Loans

7.8. The scope of SSAP No. 30—Common Stock includes SEC registered open-end investment

companies (mutual funds), closed-end funds and unit investment trusts, regardless of the types or

mix of securities owned by the fund. Investments in scope of this statement include mortgage-

backed mutual funds and other such investments. Items in scope of SSAP No. 30 are reported on

Schedule D-2-2: Common Stock. These investments are reported at fair value, with changes in

fair value recognized as unrealized gains or losses. The guidance in SSAP No. 30 requires

recognition of an other than temporary impairment (OTTI) (realized loss) if a reporting entity

decision has decided to sell the security at an amount below its carrying value or if the decline in

fair value is determined to be other than temporary pursuant to INT 06-07: Definition of Phrase

“Other Than Temporary.” As investments in scope of SSAP No. 30 are reported at fair value,

subsequent recoveries (or losses) in fair value, after recognition of an OTTI, are recognized as

unrealized gains or losses until sold or additional OTTI recognition.

Loan-backed and Structured Securities with Underlying Mortgage Loans

8.9. The scope of SSAP No. 43R—Loan-backed and Structured Securities includes residential

mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS) and credit

risk transfers (CRTs) issued through government sponsored enterprises (GSEs). (These are

commonly referred as Structured Agency Credit Risk Securities (STACRs), which are issued by

Freddie Mac, and Connecticut Avenue Securities (CAS), which are issued by Fannie Mae.) Other

mortgage loan products that meet the structural requirements as a LBSS can also be captured in

scope of SSAP No. 43R. Investments in scope of this statement securities are reported on

Schedule D-1: Long-Term Bonds. Pursuant to the guidance in SSAP No. 43R, paragraphs 30-36,

if a fair value of a LBSS is less than its amortized cost basis at the balance sheet date, an entity

shall assess whether the impairment is other than temporary. Recognition of an OTTI is then

contingent on the reporting entity intentions:

a. If the entity intends to sell the security, an OTTI shall be considered to have

occurred. In these situations, the entity shall recognize a realized loss for the

difference between the amortized cost basis and fair value. These realizes losses

are not permitted to be reversed.

b. If the entity does not intend to sell the security, the entity shall assess whether it

has the intent and ability to retain the investment in the security for a period of

time sufficient to recover the amortized cost basis. If the entity does not have the

intent and ability to retain the investment for the time sufficient to recover the

amortized cost basis, an OTTI shall be considered to have occurred. In these

situations, the entity shall recognize a realized loss for the difference between the

amortized cost basis and fair value. These realizes losses are not permitted to be

reversed.

c. Regardless if the entity does not have the intent to sell or has the intent and

ability to hold, if the entity does not expect to recover the entire amortized cost

basis of the security, an OTTI shall be considered to have occurred. In these

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situations, the entity shall recognize a realized loss for the difference between the

amortized cost basis and the present value of cash flows expected to be collected.

Other Invested Assets with Underlying Mortgage Loans

9.10. The scope of SSAP No. 48—Joint Ventures, Partnerships and Limited Liabilities

Companies includes investments that may have underlying characteristics of mortgage loans.

These items are reported on Schedule BA: Other Long-Term Invested Assets. These investments

could include private equity mortgage loan funds as well mortgage or hybrid real estate

investment trusts (REITs). The guidance in SSAP No. 48, paragraph 19 requires recognition of an

OTTI if it is probable that the reporting entity will be unable to recover the carrying amount of

the investment or sustain earnings to justify the carrying amount of the investment. The existing

guidance already indicates that a depressed fair value below the carrying amount or the existence

of operating losses are not necessarily indicators of a loss that is other than temporary.

INT 20-04T Tentative Consensus

10.11. The Working Group reached a tentative consensus for limited time exceptions to defer

assessments of impairment for bank loans, mortgage loans and investments which predominantly

hold underlying mortgage loans, which are impacted by forbearance or modifications in response

to COVID-19. These exceptions are applicable for the March 31st and June 30th, 2020 (1st and 2nd

quarter) financial statements and only in response to mortgage loan forbearance or modifications

granted in response to COVID-19. As such, the exceptions provided in this interpretation are not

applicable in the September 30, 2020 (3rd quarter) financial statements.

11.12. For modification programs designed to provide temporary relief for borrowers current as

of December 31, 2019, the reporting entities may presume that borrowers are current on

payments are not experiencing financial difficulties at the time of the modification for purposes of

determining impairment status and thus no further impairment analysis is required for each loan

modification in the program. The exceptions granted in this interpretation are detailed as follows:

a. SSAP No. 26R—Bonds: Provide a limited-time exception for assessing

impairment under SSAP No. 26, paragraph 13, for bank loans with payments

(either principal or interest) that have short-term deferrals or modifications in

response to COVID-19. This interpretation shall not delay impairment

assessments for reasons other than the short-term deferral or modification of

interest or principal payments in response to COVID-19 and shall not delay

recognition of realized losses if a reporting entity believes a bank loan is OTTI.

a.b. SSAP No. 37—Mortgage Loans: Provide a limited-time exception for assessing

impairment under SSAP No. 37, paragraph 16, for mortgage loans with payments


response to COVID-19. This interpretation shall not delay impairment

assessments for reasons other than the short-term deferral or modification of

interest or principal payments in response to COVID-19 and shall not delay

recognition of realized losses if a reporting entity believes a mortgage loan is

OTTI.

b.c. SSAP No. 30R—Common Stock: Provide a limited-time exception for assessing

OTTI under SSAP No. 30, paragraph 10, and INT 06-07 due to fair value

declines for SEC registered funds that have underlying mortgage loans that have

been deferred or modified in response to COVID-19 unless the reporting entity

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intends to sell the security. If the entity has made a decision to sell the security,

recognition of the OTTI shall continue to be required. As these investments are

reported at fair value, declines in fair value would continue to be reported as

unrealized losses.

c.d. SSAP No. 43R—Loan-backed and Structured Securities: Provide a limited-time

exception for assessing OTTI under SSAP No. 43R, paragraphs 30-36, due to fair

value declines in investments that have underlying mortgage loans deferred or

modified in response to COVID-19 unless the reporting entity intends to sell the

security. If the entity has made a decision to sell the security, then recognition of

an OTTI shall continue to be required.

d.e. SSAP No. 48—Joint Ventures, Partnerships and Limited Liabilities Companies:

Provide a limited-time exception for assessing OTTI under SSAP No. 48 due to

fair value declines in investments that have underlying mortgage loans deferred

or modified in response to COVID-19 unless the entity intends to sell the

security. Additionally, an OTTI shall be assessed if factors other than the

mortgage loan forbearance or modification have resulted with a decline that is

considered other than temporary, or the reporting entity does not believe it is

probable they will collect the carrying amount of the investment.

13. Subsequent to modifications or restructurings that impact original contractual terms of

items in scope of this interpretation, future assessments of impairment shall be based on the

modified terms.

12.14. As detailed in paragraph 110, the exceptions granted in this interpretation are applicable

for the March 31st and June 30th, 2020 (1st and 2nd quarter) financial statements and only in

response to bank and mortgage loan forbearance or modifications granted in response to COVID-

19. As the exceptions provided in this interpretation are not applicable in the September 30, 2020

(3rd quarter) financial statements, this interpretation will automatically expire as of September 29,

2020. This interpretation will be publicly posted on the Statutory Accounting Principles (E)

Working Group’s website. This interpretation will be automatically nullified on September 29,

2020 and will be included as a nullified INT in Appendix H – Superseded SSAPs and Nullified

Interpretations in the “as of March 2021” Accounting Practices and Procedures Manual.

INT 20-04T Status

13.15. Further discussion is planned.

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Attachment 6

Statutory Accounting Principles (E) Working Group

April 2020 Conference Call

Comment Letters Received

TABLE OF CONTENTS

COMMENTER / DOCUMENT PAGE

REFERENCE

Comment Letters Received – As a Result of Exposed Interpretations

Interested Parties – April 2, 2020

o INT 20-01T: ASU 2004-04—Reference Rate Reform

o INT 20-02T: Extension of the Ninety-Day Rule for the Impact of COVID-19 o INT 20-03T: Troubled Debt Restructuring Due to COVID-19

o INT 20-04T: Mortgage Loan Impairment Assessment Due to COVID-19

1-12

America’s Health Insurance Plans (AHIP) – April 2, 2020

o INT 20-02T: Extension of the Ninety-Day Rule for the Impact of COVID-19 13-16

Cigna – April 2, 2020

o INT 20-02T: Extension of the Ninety-Day Rule for the Impact of COVID-19 17-18

OneAmerica Financial Partners, Inc. – March 30, 2020

o INT 20-04T: Mortgage Loan Impairment Assessment Due to COVID-19 19-20

D. Keith Bell, CPA

Senior Vice President

Accounting Policy

Corporate Finance

The Travelers Companies, Inc.

860-277-0537; FAX 860-954-3708

Email: [email protected]

Rose Albrizio, CPA

Vice President

Accounting Practices

AXA Equitable.

201-743-7221

Email: rosemarie.albrizio@axa-

equitable.com

April 2, 2020

Mr. Dale Bruggeman, Chairman

Statutory Accounting Principles Working Group

National Association of Insurance Commissioners

1100 Walnut Street, Suite 1500

Kansas City, MO 64106-2197

RE: Interpretations (INTs) of the NAIC Statutory Accounting Principles Working Group (the

Working Group) Exposed for Comment with Comments due April 2

Dear Mr. Bruggeman:

Interested parties thank you, the Working Group and NAIC staff for responding quickly to the

issues that are arising as a result of the rapid spread of the Coronavirus Disease 2019 (COVID-

19). As several states and cities have issued “stay at home” orders and forced all non-essential

businesses to temporarily close, there has been a significant increase in unemployment and the

potential permanent closure of many businesses. We appreciate the Working Group’s efforts to

head-off problems resulting from the impact of COVID-19 on economic conditions and for the

opportunity to comment on the draft INTs that were exposed for comment to address these issues

via email vote on March 26, 2020.

INT 20-01T: ASU 2020-04 - Reference Rate Reform

This interpretation has been issued to provide statutory accounting and reporting guidance for the

adoption with modification of ASU 2020-04 – Reference Rate Reform (Topic 848): Facilitation

of the Effects of Reference Rate Reform on Financial Reporting for applicable statutory

accounting principles. The Financial Accounting Standards Board (FASB) issued ASU 2020-04

in March 2020 as optional, transitional and expedient guidance as a result of reference rate

reform.

The accounting issues are:

Issue 1: Should a reporting entity interpret the guidance in ASU 2020-04 as broadly accepted for

statutory accounting?

Issue 2: Should the optional, expedient and exception guidance in ASU 2020-04 apply to debt

and other service agreements addressed in SSAP No. 15?

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Issue 3: Should the optional, expedient and exception guidance in ASU 2020-04 apply to lease

transactions addressed in SSAP No. 22R?


derivative transactions addressed in SSAP No. 86?

For Issue 1, the Working Group came to the tentative consensus that ASU 2020-04 shall be

adopted for statutory accounting with only minor modifications noted below. The Working

Group tentatively agreed the amendments provide appropriate temporary guidance that alleviate

the following concerns due to reference rate reform:

a. Simplifies accounting analyses under current GAAP and statutory accounting

principles (SAP) for contract modifications.

b. Allows hedging relationships to continue without de-designation upon a change in

certain critical terms.

c. Allows a change in the designated benchmark interest rate to a different eligible

benchmark interest rate in a fair value hedging relationship.

d. Suspends the assessment of certain qualifying conditions for fair value hedging

relationships for which the shortcut method for assuming perfect hedge

effectiveness is applied.

e. Simplifies or temporarily suspends the assessment of hedge effectiveness for cash

flow hedging relationships.

f. The only SAP modification to this ASU is related to the option to sell debt

currently classified held-to-maturity. This concept is not employed by statutory

accounting and thus is not applicable.

For Issue 2, the Working Group came to the tentative consensus that debt and service agreement

modifications, as a result of reference rate reform, should not typically rise to the level of

requiring a reversal and rebooking of the liability, as SSAP No. 15 states such liabilities should

only be derecognized if extinguished. A reference rate modification should not generally require

de-recognition and re-recognition under statutory accounting. Nonetheless, for clarity and

consistency with ASU 2020-04, the Working Group came to the tentative consensus that should

an eligible contract be affected by reference rate reform, then the temporary guidance in ASU

2020-04 shall apply.

For Issue 3, the Working Group came to the tentative consensus that lease modifications, solely

caused by reference rate reform and ones eligible for optional expedience, likely do not rise to

the level of a modification requiring re-recognition as a new lease under statutory accounting.

SSAP No. 22R, paragraph 17 states that only modifications which grant the lessee additional

rights shall be accounted for as a new lease. These changes are outside the scope allowed for

optional expedience in ASU 2020-04. Nonetheless, for clarity and consistency with ASU 2020-

04, the Working Group came to a tentative consensus that if an eligible lease is affected by

reference rate reform, then the temporary guidance in ASU 2020-04 shall apply.

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For Issue 4, the Working Group came to the tentative consensus that ASU 2020-04 shall be

applied to derivative transactions as the following considerations provided in the ASU are

appropriate for statutory accounting:

a. For any hedging relationship, upon a change to the critical terms of the hedging

relationship, allow a reporting entity to continue hedge accounting rather than de-

designate the hedging relationship.

b. For any hedging relationship, upon a change to the terms of the designated

hedging instrument, allow an entity to change its systematic and rational method

used to recognize the excluded component into earnings and adjust the fair value

of the excluded component through earnings.

c. For fair value hedges, allow a reporting entity to change the designated hedged

benchmark interest rate and continue fair value hedge accounting.

d. For cash flow hedges, adjust the guidance for assessment of hedge effectiveness

to allow an entity to continue to apply cash flow hedge accounting.

Additionally, for GAAP purposes, if an entity has not adopted the amendments in ASU 2017-12,

Derivatives and Hedging, it is precluded from being able to utilize certain expedients for hedge

accounting. For statutory accounting purposes, only the hedge documentation requirements were

adopted from ASU 2017-12, while the remainder of the items are pending statutory accounting

review. The Working Group tentatively concluded that all allowed expedient methods are

permitted as elections for all reporting entities under statutory accounting. However, if a

reporting entity is a U.S. GAAP filer, the reporting entity may only make elections under ASU

2017-12 if such elections were also made for their U.S. GAAP financials.

Interested parties agree with the concepts proposed in item 2020-04 on Reference Rate Reform

(the “exposure draft”) and we believe that it will provide significant relief to all companies that

have entered into contracts that reference LIBOR (or another reference rate expected to be

discontinued due to reference rate reform).

We recommend that Issues 2 and 3 be combined into a single broad consensus that applies to all

contract modifications due to reference rate reform and allows the optional expedient to be

accounted for as continuations of existing contracts without requiring remeasurement of the

contracts. ASU 2020-04 did this with examples at ASC 848-20-35-3 and then broadly at ASC

848-20-35-4:

848-20-35-3 This Subtopic provides optional expedients for accounting for modifications

of contracts accounted for in accordance with the following Topics that meet the scope of

paragraphs 848-20-15-2 through 15-3:

a. Topic 310 on receivables

b. Topic 470 on debt

c. Topic 840 or 842 on leases.

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848-20-35-4 If a contract is not within the scope of the Topics referenced in paragraph 848-

20-35-3, an entity shall have the option to account for and present a modification that meets

the scope of paragraphs 848-20-15-2 through 15-3 as an event that does not require

contract remeasurement at the modification date or reassessment of a previous accounting

determination required under the relevant Topic or Industry Subtopic. Paragraph 848-20-

55-2 includes examples that illustrate the application of that guidance.

Adopting the ASU broadly for contract modifications will prevent unintentionally omitting

optional expedients. For example, interested parties noted SSAP 26R Bonds, paragraph 22

addresses exchanges and conversions and requires the fair value of a bond surrendered be the

cost basis of the new contract. SSAP 103R Transfers and Extinguishments, paragraph 130 notes

that “exchanges of debt instruments or…modifications are considered extinguishments if the

exchange or modification results with substantially different terms or is considered more than

minor.” Modifications of bonds' contractual interest rates due to rate reform should not result in

remeasurement. This is one example of an unintentional omission that can result without a broad

provision for contract modifications.

A specific area of concern for all insurers, which was expressed to the FASB as well, is related to

the sunset provision in the exposure draft, which terminates the relief outlined in the exposure

draft after December 31, 2022. We are concerned that including a hard termination date after

which the relief outlined in the exposure draft would not be available would put significant

pressure on the markets unnecessarily. We do not believe that the December 31, 2022 deadline

for all market participants to complete the modification of all contracts that reference LIBOR (or

another reference rate expected to be discontinued due to reference rate reform) is realistic, or

necessary. Although the FASB did not change the date of the sunset provision, they did state in

the Basis for Conclusion that the FASB will monitor the market-wide IBOR transitions and will

consider whether future developments warrant any changes, including changes to the end date of

the application of the amendments in the ASU.

Interested parties request the NAIC to consider extending the date or allowing for future changes

to the end date due to the uncertainty regarding when LIBOR will cease.

INT 20-02T: Extension of Ninety-Day Rule for the Impact of COVID-19

The emergence of a previously unknown virus began spreading among humans between October

2019 and March 2020, with the first deaths in the U.S. reported in early March 2020. The disease

caused by the virus is known as Coronavirus Disease 2019 (COVID-19). Several states and cities

have issued “stay at home” orders and forced all non-essential businesses to temporarily close.

This led to a significant increase in unemployment and the potential permanent closure of many

businesses. Total economic damage is still being assessed however the total impact is likely to

exceed $1 trillion in the U.S. alone.

In response to the sudden impact to the economy and its effect on the timeliness of payments by

policyholders, the Working Group considered whether a temporary extension of the 90-day rule,

extending the nonadmission guidance for premium receivables due from policyholders or agents

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and for amounts due from policyholders for high deductible policies to September 28, 2020, for

policies in U.S. jurisdictions that have been impacted by COVID-19 should be granted.

The Working Group reached a tentative consensus for a one-time optional extension of the

ninety-day rule for uncollected premium balances, bills receivable for premiums and amounts

due from agents and policyholders and for amounts due from policyholders for high deductible

policies, as follows:

a. For policies in effect and current prior to the date as of the declaration of a state of

emergency by the U.S. federal government on March 13, 2020, insurers may wait

until September 28, 2020 before nonadmitting premiums receivable from

policyholders or agents as required per SSAP No. 6, paragraph 9.

b. For high deductible policies in effect and current prior to the date as of the


2020, insurers may wait until September 28, 2020 before nonadmitting amounts

due from policyholders for high deductible policies as required per SSAP No. 65,

paragraph 37.

c. Existing impairment analysis remains in effect for these affected policies.

Due to the short-term nature of the applicability of this extension, which expires September 28,

2020, this interpretation will be publicly posted on the Statutory Accounting Principles (E)

Working Group’s website. This interpretation will be automatically nullified on September 29,

2020 and will be included as a nullified INT in Appendix H – Superseded SSAPs and Nullified


In discussing the draft wording of INT 20-02, interested parties focused on two areas of concern:

scope of the items covered by the INT and timing of the extension of the 90-day rule. We

discuss each separately below.

Scope of Items Covered by the INT

We note that the proposed INT 20-02 “scopes-in” certain types of receivables subject to the 90-

day rule to which the extension will apply by reference to SSAPs, specifically, SSAP No. 6,

Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due From Agents

and Brokers, and SSAP No. 65, Property and Casualty Contracts. However, there are other

receivables which are only covered in other SSAPs which are relevant and significant to health

plans and which are also subject to the 90-day rule:

a. SSAP No. 47, Uninsured Plans. For Administrative Services Contract (ASC)

business, health carriers have separate contracts with providers and customers and are

obligated to pay providers out of their own funds before receiving reimbursement from

the group. The provider contracts specifically state that health carriers will reimburse

providers for services rendered regardless if the subscriber is covered by a self-funded or

underwritten plan. Many health care providers have already received requests from their

large ASC customers to allow them to delay payment to the carrier for claim

reimbursements for up to 90 days.

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b. SSAP No. 84, Health Care and Government Insured Plan Receivables. This SSAP

provides accounting guidance relative to a number of types of receivables that are

relevant and significant for health plans, of which three types are subject to the 90-day

rule for purposes of determining if the asset will be treated as an admitted asset in

statutory reporting. Interested parties request that two of those types of receivables,

Pharmaceutical Rebate Receivables and Risk-Sharing Receivables, be “scoped-in” to INT

20-02. Anticipated changes in subscriber needs and utilization, combined with sub-

optimal working environments at home for many health carriers’ staff who are involved

with accounting and billing matters, presages difficulties in assuring that these

receivables will hew to normal levels seen in non-crisis times.

c. SSAP No.6 paragraph 2 states that “This statement does not address uncollected and

deferred premiums for Life considerations”. Interested parties request that life premiums

be included in the scope.

Bringing the items specified in each of paragraphs a, b and c above in scope would then subject

them to the same 90-day extension as other premium receivables currently described in the

proposed INT 2020-02, and for which the same edits suggested by interested parties in the

section below, Timing of the Extension of the 90-Day Rule, would apply.

Timing of the Extension of the 90-Day Rule

Interested parties spent some time discussing the wording that addresses how the extension of the

90-day rule is to be applied. Some interpreted the wording to only allow an extension of the rule

for contracts that are issued between the date of the declaration of a state of emergency (March

13, 2020) and March 30, 2020, approximately 180 days before the final date of September 28,

2020 allowed for the extension in the draft INT.

To clarify the intent of allowing an extension of the 90-day rule for receivables that become over

90 days past due during the state of emergency, we recommend the following edits as marked

below:

As a result of the declaration of a state of emergency by the U.S. federal government on March

13, 2020, Tthe Working Group reached a tentative consensus for a one-time optional extension

of the ninety-day rule for uncollected premium balances, bills receivable for premiums and

amounts due from agents and policyholders and for amounts due from policyholders for high

deductible policies, as follows:

a. For policies in effect and current prior to the expiration date as of the declaration

of a state of emergency declared by the U.S. federal government on March 13,

2020 and that later become past due, insurers may wait until September 28, 2020

an additional 90 days over and above the 90 days before nonadmitting premiums

receivable from policyholders or agents as required per SSAP No. 6, paragraph 9

before nonadmitting premiums receivable from policyholders or agents.

b. For high deductible policies in effect and current prior to the expiration date as of

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the declaration of a state of emergency declared by the U.S. federal government

on March 13, 2020 and that later become past due, insurers may wait until

September 28, 2020 an additional 90 days over and above the 90 days before

nonadmitting as amounts due from policyholders for high deductible policies

required per SSAP No. 65, paragraph 37 before nonadmitting amounts due from

policyholders for high deductible policies.

c. Existing impairment analysis remains in effect for these affected policies.

Interested parties recommend similar wording be added to include SSAP Nos. 47 and 84 in the

scope of the INT 20-02 as well as life premiums.

Given the complexity of describing how the extension of the 90-day rule is to be applied and

companies’ ability to apply an overly prescriptive extension, we ask the Working Group to

consider a more practical approach that would suspend the 90-day rule for the identified SSAPs

for 2nd and 3rd quarter 2020 reporting, or longer depending on the impact of COVID-19. This

approach would be easier for all to understand and companies to apply. l

INT 20-03T: Troubled Debt Restructuring Due to COVID-19

The Working Group reached a tentative consensus to clarify that a modification of mortgage loan

terms in response to COVID-19 shall follow the provisions detailed in the March 22, 2020

“Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working

with Customers Affected by the Coronavirus” (detailed in paragraph 6) in determining whether

the modification shall be reported as a troubled debt restructuring within SSAP No. 36.

This interpretation is effective for the specific purpose to address loan modifications in response

to COVID-19. This interpretation will be considered for nullification when no longer applicable.

INT 20-04T: Mortgage Loan Impairment Assessment Due to COVID-19

In response to COVID-19, Congress and Federal and state prudential banking regulators have

considered provisions pertaining to mortgage loans as a result of the effects of the COVID-19.

These provisions are intended to be applicable for the term of the loan modification, but solely

with respect to a modification, including a forbearance arrangement, an interest rate

modification, a repayment plan, and any other similar arrangement that defers or delays the

payment of principal or interest, that occurs during the applicable period for a loan that was not

more than 30 days past due as of December 31, 2019.

The Working Group reached a tentative consensus for limited time exceptions to defer

assessments of impairment for mortgage loans and investments which predominantly hold

underlying mortgage loans which are impacted by forbearance or modifications in response to

COVID-19. These exceptions are applicable for the March 31st and June 30th, 2020 (1st and 2nd

quarter) financial statements and only in response to mortgage loan forbearance or modifications

granted in response to COVID-19. As such, the exceptions provided in this interpretation are not

applicable in the September 30, 2020 (3rd quarter) financial statements.

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For modification programs designed to provide temporary relief for borrowers current as of

December 31, 2019, the reporting entities may presume that borrowers are current on payments

are not experiencing financial difficulties at the time of the modification for purposes of

determining impairment status and thus no further impairment analysis is required for each loan

modification in the program. The exceptions granted in this interpretation are detailed as follows:

a. SSAP No. 37—Mortgage Loans: Provide a limited-time exception for assessing

impairment under SSAP No. 37, paragraph 16, for mortgage loans with payments


response to COVID-19. This interpretation shall not delay impairment assessments

for reasons other than the short-term deferral or modification of interest or principal

payments in response to COVID-19 and shall not delay recognition of realized

losses if a reporting entity believes a mortgage loan is OTTI.

b. SSAP No. 30—Common Stock: Provide a limited-time exception for assessing

OTTI under SSAP No. 30, paragraph 10, and INT 06-07 due to fair value declines

for SEC registered funds that have underlying mortgage loans that have been

deferred or modified in response to COVID-19 unless the reporting entity intends

to sell the security. If the entity has made a decision to sell the security, recognition

of the OTTI shall continue to be required. As these investments are reported at fair

value, declines in fair value would continue to be reported as unrealized losses.

c. SSAP No. 43R—Loan-backed and Structured Securities: Provide a limited-time

exception for assessing OTTI under SSAP No. 43R, paragraphs 30-36, due to fair


modified in response to COVID-19 unless the reporting entity intends to sell the

security. If the entity has made a decision to sell the security, then recognition of

an OTTI shall continue to be required.

d. SSAP No. 48—Joint Ventures, Partnerships and Limited Liabilities Companies:

Provide a limited-time exception for assessing OTTI under SSAP No. 48 due to fair


modified in response to COVID-19 unless the entity intends to sell the security.

Additionally, an OTTI shall be assessed if factors other than the mortgage loan

forbearance or modification have resulted with a decline that is considered other

than temporary, or the reporting entity does not believe it is probable they will

collect the carrying amount of the investment.

As detailed in paragraph 10, the exceptions granted in this interpretation are applicable for the

March 31st and June 30th, 2020 (1st and 2nd quarter) financial statements and only in response to

mortgage loan forbearance or modifications granted in response to COVID-19. As the exceptions

provided in this interpretation are not applicable in the September 30, 2020 (3rd quarter) financial

statements, this interpretation will automatically expire as of September 29, 2020. This

interpretation will be publicly posted on the Statutory Accounting Principles (E) Working

Group’s website. This interpretation will be automatically nullified on September 29, 2020 and

will be included as a nullified INT in Appendix H – Superseded SSAPs and Nullified

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Interested parties appreciate the opportunity to comment on INT 20-03T, Troubled Debt

Restructuring Due to Covid-19, and INT 02-04T, Mortgage Loan Impairment Assessment Due to

COVID-19. We also appreciate the NAIC addressing these important topics so quickly given the

effects COVID-19 has had on the economy and your consideration of how insurers may modify

investments in their portfolios to mitigate adverse effects on borrowers. Given that insurers are

large investors in the capital markets, we believe it is imperative that we be provided similar

accounting relief for our investment portfolios as banks have been afforded in order to contribute

to the ultimate economic recovery after COVID-19.

We agree that the relief provided by the various Banking regulators, and affirmed by the FASB,

in their “Interagency Statement on Loan Modifications and Reporting for Financial Institutions

Working with Customers Affected by the Coronavirus” (“Interagency Statement”) should be

applicable to insurers for statutory reporting.. Since U.S. GAAP accounting rules on troubled

debt restructurings apply to debt investments as well, industry’s interpretation is that the

Interagency Statement applies to debt investments and not just loans.

We note that Section 4013 of the ‘‘Coronavirus Aid, Relief, and Economic Security Act’’ or

“CARES Act” seems to provide relief from the requirements of U.S. GAAP with respect to

modifications which goes beyond the relief provided in the Interagency Statement. Additional

clarity is needed with respect to the scope and application of the provisions in Section 4013 of

the CARES Act. To the extent the provisions of this Federal Law change or supersede the

guidance provided in the Interagency Statement, we believe the NAIC should amend or replace

the guidance in INT 20-03T and 20-04T to align with such enacted law.

Because we view INT 20-03T and INT 20-04T to be interrelated, we offer the following

comments for both INTs:

Scope of the INTs:

Interested parties believe the scope of both INT’s should be expanded to include debt

investments (i.e., all those investments in the scope of SSAP No. 26R and SSAP 43R). Debt

investments are a significant portion of insurers’ investment portfolios and we believe including

them in the scope of the INTs will afford companies more of an opportunity to contribute to

economic recovery after COVID-19.

The intent of the Interagency Statement was to encourage financial institutions to work prudently

with borrowers who are or may be unable to meet their contractual payment obligations because

they are experiencing short-term financial or operational problems due to the effects of COVID-

19. Industry’s interpretation is that the scope of the Interagency Statement applied to debt

investments, not just loans, since debt instruments, such as bonds, are also within the scope of

ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. As currently

drafted, INT 20-03T is limited to mortgage loans, which is inconsistent with the scope of SSAP

No. 36, Troubled Debt Restructuring. When insurers apply SSAP No. 36 today they apply it not

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only to loans, but also to debt investments. Interested parties request that the scope of INT 20-

03T be broadened to include all lending activity in the scope of SSAP No. 36, which for insurers

include debt investments (SSAP No. 26R and SSAP 43R) that are a significant portion of

insurers’ investment portfolios, as long as a borrower was current on amounts due at the time of

the modifications, relief provided by a lender was temporary and directly related to COVID-19,

and the relief provided was insignificant. This is also consistent with U.S. GAAP, which requires

FASB Topic 310-40 (Troubled Debt Restructurings for Creditors) to be applied to loans and

debt. In summary, broadening the scope of INT 20-03T would be consistent with how insurers

apply SSAP 36 and with the requirements of U.S. GAAP.

In addition, INT 20-04T, as currently written, is limited to mortgage loans or investments that are

predominantly impacted by underlying mortgage loans. Insurers may provide the same type of

temporary relief to various borrowers in other areas of their investment portfolios (i.e., non-

mortgage loan related), including bank loans and debt investments. The intent of such

modifications or relief is to mitigate adverse effects on borrowers due to COVID-19. As a result,

we believe the scope of INT 20-04T also should be expanded to all investments in the scope of

SSAP No. 26R and SSAP 43R.

Including SSAP No. 26R and SSAP 43R investments in the scope of both INTs would result in

insignificant modifications for borrowers that are current at the time of the modification and that

provide relief due to COVID-19 not being considered TDRs. Additionally, such modifications

should not trigger impairments; however, impairment assessments should not be delayed if

relief/modifications provided by lenders are not directly related to COVID-19.

We would also like to confirm that any COVID-19 related modifications entered into while the

Interpretation is in effect (at least until December 31, 2020) will not be considered TDRs or

impairments for as long as the modification is in force.

Non-admitting Accrued Interest:

The Interagency Statement also discusses “past due” amounts and notes that amounts should not

be reported as past due if the lender has granted a deferral or forbearance due to COVID-19

modifications discussed above. We believe that the relief in the Interagency Statement should be

applicable to insurers for statutory reporting. Interested parties believe INT 20-04T should be

expanded to address accrued interest income. That is, interest amounts accrued for mortgage

loans that are deemed collectible, however are 180 days past due (based on the past due

definition in SSAP No. 37) because of modifications discussed in this letter, should continue to

be admitted assets. Additionally, accrued interest related to SSAP No. 26R and SSAP 43R

investments where relief was provided due to COVID-19 also would continue to be admitted if

more than 90 days past due (as defined in SSAP No. 34).

As the Interpretation is effective until nullified by the NAIC, interested parties seek to clarify

that loans granted a short-term payment deferral that ends after the nullification would be

admitted during the entire term of the short-term payment deferral, even if the deferral period

ends after the Interpretation is nullified.

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Limited Exception: 1st and 2nd Quarter- INT 20-04T

INT 20-04T provides for a limited exception for considering whether it is “probable” an investor

would receive its contractual principal and interest payments when the investor provides

temporary relief related to COVID-19. The limited exception is for only 1st and 2nd quarter

statutory reporting. As insurers are a key lender to many businesses through commercial

mortgage loans, bank loans, other SSAP No. 26R investments, SSAP 43R, and the many other

types of investments discussed in INT 20-04T, to mitigate adverse effects to borrowers and help

future recovery in the economy after COVID-19, interested parties believe relief should be

provided beyond the 1st and 2nd quarters. As no one is able to predict the length of economic

recovery, we believe providing an exception until at least 12/31/2020 would match the expected

timeframe that insurers believe they will be addressing issues.”. At the very least, we believe the

limited exception period should be revisited and re-assessed with industry prior to the date

expiring.

In addition, interested parties interpreted INT 20-04T to mean that, if a modification were made

in the 1st or 2nd quarter, and, the modified terms are insignificant and extend beyond the 2nd

quarter, the 9/30/2020 expiration date in the INT would not be relevant. That is, IPs seek to

clarify that loans granted a temporary modification during the exception period, but such

modification period extends beyond the exception would continue to have the INT applied. We

suggest clarification be provided in the INT to this point.

* * *

Thank you for considering interested parties’ comments. If you have any questions in the

interim, please do not hesitate to contact us.

Sincerely,

D. Keith Bell Rose Albrizio

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Dale Bruggeman Chair, Statutory Accounting Principles (E) Working Group National Association of Insurance Commissioners

By e-mail to Julie Gann, Robin Marcotte, Jim Pinegar, Fatima Sediqzad and Jake Stultz

Exposed INT 20-02: Extension of Ninety-Day Rule for the Impact of COVID-19

Dear Chairman Bruggeman:

America’s Health Insurance Plans (AHIP) is pleased to comment on the above referenced proposed Interpretation of the NAIC’s Statutory Accounting Principles Working Group (SAPWG).

First, we would like to take the opportunity to commend the NAIC and SAPWG on their swift action in dealing with the COVID-19 pandemic. We thank you for recognizing the difficulties with which consumers and insurance carriers are grappling, as well as the critical need for regulatory flexibility in these uncertain times. State regulators are being stretched to the limit, as are our members. We wanted to express our appreciation for your continued recognition of these difficulties and efforts to streamline and coordinate, even as you deal with the same inordinate time and resource challenges in the regulatory community. We also want to thank you and NAIC staff for your time in conferring with us by phone on March 30. As we indicated on that call, and while AHIP is responding to INT 20-02 herein, we do not plan to respond to the other proposed SAPWG interpretations currently out for exposure which pertain to COVID-19, i.e., INT 20-01, INT 20-03 and INT 20-04. Also to follow-up on our call, AHIP will be providing you with separate letters in the near term with respect to concerns presented to health insurance plans from COVID-19 and the related impact of certain provisions of SSAP No. 84, Health Care and Government Insured Plan Receivables, and SSAP No. 106, Affordable Care Act Section 9010 Assessment. With that, we have the following comments regarding the proposed extension of the Ninety-Day Rule:

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• Given the pervasive economic impacts the crisis is having on firms and individuals, we expect temporary but potentially significant increases in past due receivables of health plans. Thus, AHIP strongly supports the concept of an extension of the Ninety-Day Rule due to COVID-19.

• While AHIP desires an extension that will remain in place longer than the proposed September 28 expiration of INT 20-02 as a “just-in-case measure”, we understand that SAPWG anticipates gauging the necessity for further extension as the expiration date nears and, if necessary, will consider at that time. We believe that such monitoring and willingness to consider a further extension in light of circumstances seen on the ground at that time to be an imperative.

• We note that the proposed INT 20-02 “scopes-in” certain types of receivables subject to the Ninety-Day Rule to which the extension will apply by reference to SSAPs, specifically, SSAP No. 6, Uncollected Premium Balances, Bills Receivable for Premiums, and Amounts Due From Agents and Brokers, and SSAP No. 65, Property and Casualty Contracts. However, there are other receivables which are only covered in other SSAPs which are relevant and significant to health plans and which are also subject to the Ninety-Day Rule:

i. SSAP No. 47, Uninsured Plans: For Administrative Services Contract (ASC) business, health carriers have separate contracts with providers and customers and are obligated to pay providers out of their own funds before receiving reimbursement from the group. The provider contracts specifically state that health carriers will reimburse providers for services rendered regardless of whether the subscriber is covered by a self-funded or underwritten plan. Some AHIP members have already received requests from their large ASC customers to allow them to delay payment to the carrier for claim reimbursements for up to 90 days.

ii. SSAP No. 84, Health Care and Government Insured Plan Receivables: This SSAP provides accounting guidance relative to a number of types of receivables that are relevant and significant for health plans, of which three types are subject to the Ninety-Day Rule for purposes of determining if the asset will be treated as an admitted asset in statutory reporting. AHIP requests that two of those types of receivables, Pharmaceutical Rebate Receivables and Risk-Sharing Receivables, be “scoped-in” to INT 20-02.1

Anticipated changes in subscriber needs and utilization, combined with sub-optimal working environments at home for many of our members’ staff who are involved with accounting and billing matters, presage difficulties in assuring that these receivables will hew to normal levels seen in non-crisis times. With these receivables scoped-in to INT 20-02, they would be subject to the same proposed extension provisions as for other receivables applicable to the Ninety-Day Rule.

1 The third type of receivable covered by SSAP No. 84 which is also subject to the Ninety-Day Rule is Loans and Advances to Providers. AHIP is not requesting that such balances be scoped-in to the proposed INT 20-02 at this time. However, AHIP has other comments unrelated to the application of the Ninety-Day Rule to Loans and Advances to Providers which we will forward in a separate letter.

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Finally, AHIP has concerns with the Staff-drafted language in paragraphs 3a and 3b of INT 20-02. AHIP supports the substance of the Industry Interested Parties group’s suggested language, and would propose language consistent with theirs, such as the following:

For policies in effect and current prior to the expiration date as of the declaration of a state of emergency declared by the U.S. federal government on March 13, 2020 and that later become past due, insurers may wait until September 28, 2020 an additional 90 days over and above the 90 days before nonadmitting premiums receivable from policyholders or agents as required per SSAP No. 6, paragraph 9 before nonadmitting premiums receivable from policyholders or agents.

* * * * * * *

AHIP appreciates this opportunity to comment and would be glad to address any questions you or other SAPWG members may have at your convenience. Sincerely, America’s Health Insurance Plans Bob Ridgeway [email protected] 501-333-2621

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April 2, 2020 Mr. Dale Bruggeman Chairman, Statutory Accounting Principles (E)Working Group Sent via e-mail: [email protected], [email protected], [email protected], [email protected] Dear Chairman Bruggeman: On behalf of the undersigned companies, thank you for your leadership in exposing INT 20-02, which extends the 90-day rule for admitted assets. As you are aware, dozens of states have issued guidance designed to give premium relief for their customers during the COVID-19 pandemic. Consequently, health insurers will experience delays in securing payment from our customers. We hope that this working group can give us the support we need to adequately plan for late premium payments. While our companies are doing everything it can ease the financial impact of the pandemic to our clients and customers, we should not be penalized for receivables paid in excess of 90-days. While relief through the end of second quarter could be helpful, we believe that date will not give us sufficient time to admit expected assets. Therefore, we request that SAPWG extend the time frame contemplated in INT 20-02 from the end of the second quarter to the end of the third quarter. We believe this is the most likely scenario based on current estimates and will give our companies the certainty and direction it needs to plan during this pandemic. We hope you will agree this is a reasonable solution to unprecedented circumstances, and we strongly encourage the adoption of INT 20-02 with the amendment suggested by the undersigned insurers. Thank you for considering our comments, as well as the comments of America’s Health Insurance Plans with which we are aligned. If you need additional information, please feel free to contact us. Sincerely,

Amy Lazzaro VP, Regulatory Affairs, Cigna

[email protected]

Christine Cappiello VP, State Government Affairs, Anthem

[email protected]

Randi Reichel VP, Regulatory Affairs, UnitedHealth Group

[email protected]

Gregg Martino VP, Regulatory Affairs, Aetna

[email protected]

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ONEAMERICA FINANCIAL PARTNERS, INC. One American Square, P.O. Box 368

Indianapolis, IN 46206-0368

Phone (317) 285-4885

March 30, 2020

Statutory Accounting Principles (E) Working Group

Attn: Dale Bruggeman, Chair of the Statutory Accounting Principles (E) Working Group

Re: Response to Exposure Draft INT 20-04T

Dear Mr. Bruggeman:

I am reaching out in response to the SAPWG’s Exposure Draft INT 20-4: Mortgage Loan Impairment

Assessment Due to COVID-19. Specifically, I have a clarifying question and observation.

The Exposure Draft states the exceptions granted are applicable for the March 31st and June 30th, 2020

(1st and 2nd quarter) financial statements. Further, it states the exceptions are not applicable in the

September 30, 2020 (3rd quarter) financial statements and the interpretation will automatically expire as

of September 29, 2020.

As such, as impairment is a ‘point-in-time’ assessment as of the balance sheet date, it is my understanding

that loan modifications meeting the conditions set out in this Exposure Draft can therefore be modified up

to September 29, 2020 in order for these exceptions to apply (i.e., not cut-off post June 30, 2020).

Further, we expect that certain of our impacted borrowers may not proactively request relief

(modification) in the next few months. As such, if we believe it is possible that a borrower would not ask

for relief until after the cut-off date above (e.g., during Q4 2020), it would seem this would encourage

companies to proactively modify a larger number of loans now to avoid a more problematic accounting

implication later. Any guidance or clarification on this observation would be appreciated. In addition, we

would ask that you consider extending the guidance until the later of the cut-off date above or until

COVID-19 is no longer considered a national emergency.

Thanks for your attention and consideration to these observations.

Sincerely,

Bud Graessle

VP, Controller, Treasurer, and Senior Accounting Officer

OneAmerica Financial Partners, Inc., a wholly-owned parent company of American United Life

Insurance Company, The State Life Insurance Company, and Pioneer Life Mutual Insurance Company

[email protected]

Cc: Steven Holland, OneAmerica VP of Commercial Mortgage Loans and Real Estate

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