1 STAT & GAAP Update David Berry. 2 Agenda Statutory-Accounting Update NAIC Update US GAAP Update.

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STAT & GAAP UpdateDavid Berry

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Agenda

• Statutory-Accounting Update• NAIC Update• US GAAP Update

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Statutory Accounting Update

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Adopted SSAP Amendments – 2015

• No substantive revisions to the 2015 AP&P Manual yet• SSAP No. 1 - Disclosure of Accounting Policies, Risks &

Uncertainties, and Other Disclosures and SSAP No. 4—Assets and Nonadmitted Assets and various other statements – Revisions adopt ASU 2014-15, Presentation of Financial

Statements – Going Concern and incorporate audited disclosure requirements for a reporting entity to evaluate and disclose whether there is substantial doubt on the entity’s ability to continue as a going concern.

– In addition, revisions to SSAP Nos. 48, 68 and 97 nonadmit investments in related affiliate holdings whose audited financial statements include going concern notes.

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• SSAP No. 69 - Statement of Cash Flow– Revisions clarify that the cash flow statement should be

limited to transactions involving “cash,” which is defined to include cash, cash equivalents and short-term investments, and to expand the disclosures to include non-cash operating items.

– Effective December 31, 2015

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• SSAP No. 36 – Troubled Debt RestructuringSSAP No. 37 – Mortgage LoansSSAP No. 40R – Real Estate Investments

– Adopt with modification ASU 2014-04, Receivables – Troubled Debt Restructuring by Creditors – Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure and adopt ASU 2014-14, Receivables – Troubled Debt Restructuring by Creditors – Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure. Revisions prescribe accounting and reporting for foreclosed mortgage loans collateralized by real estate and foreclosed mortgage loans guaranteed by a government-sponsored program.

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• SSAP No. 74 - Accounting for the Issuance of Insurance-Linked Securities Issued by a Property and Casualty Insurer Through a Protected Cell – Revisions reference existing reporting lines for protected

cells.

• SSAP No. 92 - Accounting for Postretirement Benefits Other Than Pensions

SSAP No. 102 – Accounting for Pensions– Revisions incorporate the guidance from INT 13-03—

Clarification of Surplus Deferral

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• Issue Paper No. 99 – Non-applicable GAAP Pronouncements– Revisions reject ASU 2014-13, Measuring the Financial

Assets and Financial Liabilities of a Consolidated Collateralized Financing Entity as not applicable to statutory accounting.

• SSAP No. 11 - Postemployment Benefits and Compensated Absences – Revisions delete disclosures that pertain to defined

benefit and defined contribution plans, with a reference to complete the disclosures in SSAP No. 92 if the entity is providing special or contractual termination benefits.

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• SSAP No. 93 – Accounting for Low Income Housing Tax Credit Property Investments– Revisions adopt with modification ASU 2014-01.

These revisions reflect GAAP terminology but maintain the prior statutory accounting methodology, including gross income statement presentation.

• SSAP No. 61R- Life, Deposit-Type and Accident and Health Reinsurance– Revisions incorporate a disclosure related to compliance

with XXX/AXXX Reinsurance Model Regulation, Actuarial Guideline 48 or state’s variation.

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• SSAP No. 54 – Individual and Group Accident and Health Contracts– Revisions specify the asset and liability lines for

contracts subject to redetermination. – Revisions adopt the ASU 2010-23 Health Care

Entities, Measuring Charity Care definition of charity care, and adopt with modification the charity care disclosure within ASU 2010-23.

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• SSAP No. 25 – Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties– Revisions reject ASU 2013-06 Not-For-Profit Entities –

Services Received from Personnel of Affiliate in SSAP No. 25

• SSAP No. 86 – Accounting for Derivative Instruments and Hedging, Income Generation, and Replication (Synthetic Asset) Transactions– Revisions reject ASU 2014-16 Derivatives and Hedging

(Host Contract) for statutory accounting

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• SSAP No. 40R – Real Estate Investments– Revisions clarify when an encumbrance on wholly owned real

estate held in an LLC is allowed for SSAP No. 40R (Schedule A) reporting.

– A standard mortgage or encumbrance by an unrelated party is allowed within this guidance.

– However, a participating mortgage loan (paragraph 22) with related or unrelated parties, or loans or other encumbrances from related parties would not be allowed – not solely and distinctly possessing all risks and rewards of ownership.

• SSAP No. 68 – Business Combination and Goodwill– Revisions provide a consistency clarification that the goodwill

limitation test is completed at the individual reporting company level.

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• SSAP No. 24 – Discontinued Operations and Extraordinary Items– Revisions adopt with modification ASU 2015-01 Income

Statement – Extraordinary and Unusual Items, to be consistent with existing guidance that prohibits separate reporting for extraordinary items.

– Revisions adopt with modification ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which intend to be consistent with existing guidance that prohibits separate reporting and prohibit gain recognition until the disposal transaction is complete. Also adopted were reduced disclosure requirements.

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Exposed Substantive SSAP Amendments – 2015

Ref # Title Description of Change2014-25

SSAP No. 41—Surplus Notes

Exposed issue paper detailing revisions to the measurement method for holders of non-rated surplus notes and surplus notes with a designation below an NAIC 1. This issue paper requests comments on specific discussion points, including whether the use of amortized cost should be expanded.

2015-31

Various SSAPs

Received a referral from the Valuation of Securities (E) Task Force regarding non-recourse charity loans and notes and exposed an agenda item requesting comments on the structure of transactions that could be considered in-scope and proposals to clarify the accounting and reporting.

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Exposed SSAP Nonsubstantive Amendments-2015

Ref # Title Description of Change

2013-36

SSAP No. 26-Bonds, Excluding Loan-Backed and Structured Securities

With regards to the Investment Classification Project, exposed the Blackrock comment letter, specifically requesting comment on Blackrock’s proposed calculation of “amortized cost” for Exchange Traded Funds.

2014-28

SSAP No. 62R-Property Casualty Reinsurance

Exposed revisions and an illustration to decrease the provision for reinsurance liability related to certain asbestos and environmental reinsurance with retroactive counterparties and to provide consistency with the proposed annual statement reporting.

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2015-04


Exposed revisions to clarify the yield-to-worst concept for callable bonds.

2015-08

SSAP No. 97-Investments in Subsidiary, Controlled and Affiliated Entities (SCAs)

Nonadmitted Assets and Application of the Statutory Accounting Principle (SAP) Guidance: Exposed revisions to: 1) clarify accounting for non-insurance SCAs; 2) add disclosure of permitted or prescribed practices for insurance SCAs and 3) clarify adjustments for non-insurance SCAs meeting the revenue and activity test.

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2015-10

SSAP No. 15-Debt and Holding Company Obligations

Exposed revisions to reject ASU 2015-03: Simplifying the Presentation of Debt Issuance Cost and maintain the current charge to operations for these costs.

2015-13

SSAP No. 92-Postretirement Benefits Other than Pensions

SSAP No. 102-Pensions

Exposed revisions to include guidance regarding interim re-measurement of plan assets and benefit obligations due to a significant event and adopt with modification ASU 2015-04: Practical Expedient for the Measurement Date of An Employer’s Defined Benefit Obligation and Plan Assets. Also incorporated a title change to SSAP No. 102 so that the title mirrors other recent revisions, removing reference to “Accounting for”.

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2015-17


SSAP No. 43R-Loan-Backed and Structured Securities

Exposed revisions to require Asset Valuation Reserve (AVR) filer investments designated NAIC 5 to be reported at the lower of amortized cost or fair value.

2015-21

SSAP No. 55-Unpaid Claims, Losses and Loss Adjustment Expenses

Exposed revisions to clarify that fees incurred for salvage and subrogation recoveries shall be reported gross, regardless of whether the fees are paid to third parties or processed internally.

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2015-23


Exposed three options for the accounting and reporting treatment of prepayment penalties.

2015-24

SSAP No. 23-Foreign Currency Transactions and Translations

Exposed revisions to clarify the optional accounting treatment for translation of Canadian Insurance Operations.

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Ref # Title Description of Change2015-

25SSAP No. 97-Investments in Subsidiary, Controlled and Affiliated Entities (SCAs)

Inclusion of Filing Guidance: Exposed revisions to incorporate the filing process for these investments (sub-1 and sub-2 filings) from the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual) and agreed to send a referral to the Valuation of Securities (E) Task Force to review the proposed changes and to coordinate revisions related to the location of filing guidance.

2015-27

SSAP No. 1-Accounting Policies, Risks & Uncertainties, and Other Disclosures

Discussed costs and benefits of quarterly investment information, and exposed the agenda item with a request for proposals on what should be captured, and the form of such submissions.

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Preamble Exposed revisions to: 1) restructure to clarify historical guidance, 2) include the preamble within level 4 of the SAP Hierarchy and 3) add a narrative reference to INT 00-20: Application of SEC SAB No. 99, Materiality to the Preamble of the Accounting Practices and Procedures Manual.

2015-30

SSAP No. 107-Risk-Sharing Provisions of the Affordable Care Act

Exposed revisions regarding contracts subject to redetermination which are consistent with recent revisions adopted in SSAP No. 54-Individual and Group Accident and Health Contracts.

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32SSAP No. 97-Investments in Subsidiary, Controlled and Affiliated Entities (SCAs)

Application of Equity Method: Exposed revisions clarify the guidance in paragraphs 10-12.

2015-33

SSAP No. 78-Multiple Peril Crop Insurance

Exposed agenda item to collect information from regulators, industry, and the U.S. Department of Agriculture (USDA) Risk Management Agency (RMA) regarding any needed updates to SSAP No. 78 and the intent to develop clarifying language regarding: 1) the use of the billing date for application of the 90-day rule; 2) defining the processing date or updating the term; 3) providing more specificity regarding the period of risk for purposes of earning revenue; and 4) developing a glossary of terms including dates that are specific to the federal crop programs.

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SSAP No. 1-Accounting Policies, Risks & Uncertainties, and Other Disclosures

Exposed agenda item to collect information regarding the use of insurance-linked securities by both insurers and reinsurers, with an example template of what may be requested for disclosure.

2015-35

SSAP No. 65-Property and Casualty Contracts

Received referral from the Financial Analysis (E) Working Group and exposed an agenda item proposing disclosures to capture information regarding recoverables from policyholders under high deductible policies.

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SSAP No. 61R-Life, Deposit-Type and Accident and Health Reinsurance

Exposed new disclosures proposed by the American Council of Life Insurers (ACLI) to get information on the reinsurance of variable annuity contracts with an affiliated captive reinsurer and reinsurance agreements with an affiliated captive reinsurer.

2015-37

ASU 2015-09-Financial Services - Insurance, Disclosures about Short-Duration Contracts

Exposed the agenda item requesting for comments from regulators and industry representatives on the GAAP disclosures for short-duration insurance contracts.

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Exposed SSAP Amendments – Spring 2015

Ref # Title Description of Change2015-03

SSAP No. 22—Leases

Exposed agenda item requests comments on issues with sale-leasebacks

2015-08

SSAP No. 97—Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88

Exposed agenda item requests comments on issues with the reporting of investments in subsidiary, controlled and affiliated entities

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US GAAP Update

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New Accounting Standards Updates

• ASU 2015-01 – Income Statement – Extraordinary and Unusual Items

• ASU 2015-02 – Consolidation• ASU 2015-03 – Interest – Imputation of Interest• ASU 2015-04 – Compensation –Retirement Benefits• ASU 2015-05 – Intangibles – Goodwill and Other –

Internal-Use Software (Cloud Computing)

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New Accounting Standards Updates

• ASU 2015-07 – Fair Value Measurement• ASU 2015-09 – Financial Services - Insurance• ASU 2015-14 – Revenue from Contracts with Customers• ASU 2015-15 – Imputation of Interest

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ASU 2015-09 – Disclosures about Short Duration Contracts

• Main Provisions– Provide tables on a disaggregated basis illustrating the amount of insurance

claims that have been incurred, as well as the amounts the insurance company has paid out on these claims, presented by accident year for the number of years for which claims typically remain outstanding (not to exceed ten years);

– Reconcile the claims development tables to the amount of the liability presented on the statement of financial position;

– Disclose, for each accident year presented in the claims development tables, the total IBNR of reported claims;

– Provide disaggregated information about the frequency of reported claims, unless obtaining this information is impractical;

– Provide a disaggregated history of claims duration, presented as the average annual percentage payout of incurred claims by age.

(Note, IBNR is defined as incurred but not reported claims, plus expected development)

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Required Tables1. Rollforward• Disclose for annual and interim reporting periods a

rollforward of the liability for unpaid claims and claim adjustment expenses, with separate disclosure for reinsurance recoverable.

– Separate provisions and payments of claims in the current and prior fiscal years.

• For health insurance claims, the amendments require the disclosure of the total IBNR included in the liability for unpaid claims and claim adjustment expenses.

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Required Tables2. Claims Development Tables(By accident year, net of reinsurance, not to exceed 10 years).

(Periods presented prior to the current reporting period is considered supplementary information).

• Paid Claims• Incurred Claims

– Include IBNR for each accident year– Include cumulative claim frequency by accident year

» (Unless impractical to disclose, must disclosure why the this information is impractical)

• Reconcile – Incurred and paid claims development shall be reconciled to the carrying amount of unpaid

claim liabilities and claims adjustment expenses, with a separate disclosure for reinsurance recoverable

– Shall include the total monetary amount of net outstanding claims that were not presented in part of the claims development tables.

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Required Tables2. Claims Development Tables (Continued)

– Claim development tables should be aggregated or disaggregated for useful information. Examples include:

a. Type of coverage (for example, major product line)b. Geography (for example, country or region)c. Reportable segment as defined in Topic 280 on segment reportingd. Market or type of customer (for example, personal or commercial lines of business)e. Claim duration (for example, claims that have short settlement periods or claims that have long settlement periods).

– Disclosures are not needed for insignificant categories, however, insignificant categories shall be included in the reconciliation.

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Required Tables2. Claims Development Tables (Continued) – Incurred

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Required Tables2. Claims Development Tables (Continued) – Paid

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Required Tables2. Claims Development

Tables (Continued) – Reconciliation

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Required Tables3. Average Annual Percentage Payout of Incurred

Claims By Age• History of claims duration – For the same number of accident years as

presented in the claims development tables.– This table shall be disclosed as supplementary

information. – Not required for health insurance claims.

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Required Tables3. Average Annual Percentage Payout of Incurred

Claims By Age

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Required Qualitative Disclosures1. IBNR Methodology

• Determination of total IBNR for each accident year presented• Significant changes to methodology

2. Claim Frequency Determination• Method for determining claim frequency• How claim frequency is measured• Changes to method and measurement of claim frequency

3. Present Value (if unpaid claims are reported at present value)• Range of interest rates used to discount the liabilities• For each period presented, the aggregate amount of discount for the time

value of money deducted to derive the liability for unpaid claims and claims adjustment expenses

• For each period presented, interest accretion recognized• Classification in the statement of income for interest accretion

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• Effective Date– Public Entities• Annual periods beginning after December 15, 2015 (FY

2016)• Interim periods within annual periods beginning after

December 15, 2016 (FY 2017)– Nonpublic Entities• Annual periods beginning after December 15, 2016 (FY

2017)• Interim periods within annual periods beginning after

December 15, 2017 (FY 2018)

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• Transition Requirements– Initial year of application

• Need not disclose information about claims development for a particular category that occurred earlier than 5 years before the end of the first reporting year in which amendments are applied if it is impracticable.

• For each subsequent year, the minimum required number of years increases by one year, not to exceed 10 years.

– Early adoption permitted– Retrospectively applied, except for those that only apply

to current period.

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ASU 2015-01 – Income Statement – Extraordinary and Unusual Items

• Eliminates the concept of extraordinary items being separately stated on income statement

• Presentation and disclosure guidance still retained• Effective for fiscal years and interim periods beginning

after December 15, 2015.– Applied prospectively or retrospectively

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Consolidation – VIE’s Revisit Current GAAP

History of Variable Interest Entities1. FIN 46R – 2003– Primary Beneficiary = Absorb Majority (50%) of Expected

Losses, Returns, or both.

2. FAS 167 – 2009– Primary Beneficiary = Power and Economics significant to

the VIE

3. ASU 2015-02 – 2015– Primary Beneficiary = Power and Economics significant to

the VIE

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Does VIE Guidance Apply?

Who has Controlling Financial Interest?

Legal Entity? Scope Exception? Variable Interest? Variable Interest

Entity?

Primary Beneficiary

Related PartyTie-Breaker

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What is a Variable Interest?• The investments or other interests that will absorb portions of a variable interest

entity’s (VIE's) expected losses or receive portions of the entity’s expected residual returns are called variable interests. Variable interests in a VIE are contractual, ownership, or other pecuniary interests in a VIE that change with changes in the fair value of the VIE's net assets exclusive of variable interests.

What is a Variable Interest Entity (VIE)?An entity is a VIE if any of the following conditions exist:

• Lacks Sufficient Equity• The entity is thinly capitalized (i.e., the equity is not sufficient to fund the entity's activities

without additional subordinated financial support).

• The equity holders as a group lack controlling financial interest (i.e. power and economics)• Considered to have one of the following characteristics:

– Lack the power to direct the activities that most significantly impact the entity's economic performance.– Lack the obligation to absorb the entity's expected losses.– Lack the right to receive the entity's expected residual returns.

• Possesses non-substantive voting rights

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• Consolidation of VIEs under FAS 167– The reporting entity that consolidates a VIE is the primary beneficiary of that

entity.– The primary beneficiary is the variable interest holder that has (1) the power

to direct activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

• Partial Deferral of FAS 167 – Certain investment funds meeting the criteria of an investment company

under ASC 946 can defer FAS 167 and apply FIN 46R– Under FIN 46R, the primary beneficiary is the reporting entity with a variable

interest in the entity that is obligated to absorb the majority of the VIE’s expected losses.• If no one entity will absorb the majority of the VIE’s expected losses, the

primary beneficiary is the reporting entity that is entitled to receive a majority of the VIE’s expected residual returns.

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Investment Company Requirements (Effective 1/1/2014 from ASU 2013-08)• ASC 946-10-15-6 (Fundamental Characteristics)

– It is an entity that does both of the following:• Obtains funds from one or more investors and provides the investor(s) with investment

management services• Commits to its investor(s) that its business purpose and only substantive activities are

investing the funds solely for returns from capital appreciation, investment income, or both. – The entity or its affiliates do not obtain or have the objective of obtaining returns or benefits

from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income.

• ASC 946-10-15-7 (Typical Characteristics)– It has more than one investment. – It has more than one investor. – It has investors that are not related parties of the parent (if there is a parent) or the investment

manager. – It has ownership interests in the form of equity or partnership interests. – It manages substantially all of its investments on a fair value basis.

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Investment Company Requirements (Effective 1/1/2014 from ASU 2013-08)• 946-10-55-8 (Returns or Benefits from Investments)

– An entity would not be an investment company if the entity or its affiliates obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income.

– Examples of relationships and activities that would be inconsistent with the characteristics of an investment company include any of the following:• Acquiring or using the processes, assets, or technology of an investee or its affiliates. This

includes having disproportionate or exclusive rights to these items.• Having arrangements to jointly develop, produce, market, or provide products or services• Providing financing guarantees or assets to serve as collateral for borrowing arrangements to

provide returns other than capital appreciation or investment income. • Holding an option to purchase ownership interests in an investee at an amount other than fair

value. • There are transactions between the entity or its affiliates and an investee or its affiliates that

meet any of the following:– Terms unavailable to entities that are not affiliates of the investee. – Not at fair value or are not conducted at arm’s length. – Represent a substantive portion of the business activities.

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Related Party Tiebreaker Criteria• 810-10-25-44 If two or more related parties (including the de facto agents

described in the preceding paragraph) hold variable interests in the same VIE, and the aggregate variable interest held by those parties would, if held by a single party, identify that party as the primary beneficiary, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary. The determination of which party within the related party group is most closely associated with the VIE requires judgment and shall be based on an analysis of all relevant facts and circumstances, including all of the following:

a. The existence of a principal-agency relationship between parties within the related party group

b. The relationship and significance of the activities of the VIE to the various parties within the related party group

c. A party’s exposure to the expected losses of the VIEd. The design of the VIE

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ASU 2015-02 – Consolidation

• Key areas affected by the ASU include: – The deferral of ASU 2009-17 for investments in certain investment

funds has been eliminated – The ASU reduces the likelihood that fees paid to a decision maker

or service provider will result in consolidation – Limited partnerships will be variable interest entities (VIEs), unless

the limited partners (LPs) have either substantive kick-out or participating rights. Eliminates the presumption that the General Partner controls the entity.

– For entities other than limited partnerships, the ASU clarifies how to determine whether the equity holders (as a group) have power over the entity

– The ASU reduces the likelihood that interests held by a reporting entity’s related parties or de facto agents will result in consolidation

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ASU 2015-02 – Consolidation

• Effective for public business entities for annual periods beginning after December 15, 2015 (FY 2016). One year deferral for nonpublic entities (FY2017).

• Early adoption is permitted but guidance must be applied as of the beginning of the annual period containing the adoption date

• Transition–either full retrospective or modified retrospective adoption

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ASU 2015-03 – Interest – Imputation of Interest

• Debit issuance costs related to a recognized debt liability should be presented as a direct deduction from the carrying amount of the debt liability

• Public - Effective for public business entities for annual periods beginning after December 15, 2015 and interim periods within those fiscal years

• Non-public - Effective for public business entities for annual periods beginning after December 15, 2015 and interim periods within fiscal years beginning after December 15, 2016

• Early adoption permitted. Apply retrospectively.

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ASU 2015-03 – Interest – Imputation of Interest

• ASU 2015-15 was issued to address line-of-credit arrangements as commented by the SEC.

• The SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

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ASU 2015-04 – Compensation –Retirement Benefits

• Gives an employer whose fiscal year-end does not coincide with a calendar month-end (e.g., an entity that has a 52- or 53-week fiscal year) the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end.

• Accounting for contributions– Funded status should be adjusted to reflect:

• Additions to plan assets for contributions made after the measurement date but before fiscal year end or

• Deductions from plan assets for a contribution made after fiscal year-end but before measurement date

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• Accounting for significant events that require remeasurement that occur during the period between a month-end measurement date and the employer’s fiscal year end.– Event should be recorded in fiscal year in which the event

occurs.– However, entity may elect to measure the effects of a

significant event as of the calendar month nearest to the date of the significant event.

– Case-by-case basis

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• Public - Effective for public business entities for annual periods beginning after December 15, 2015 and interim periods within those fiscal years

• Non-public - Effective for public business entities for annual periods beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017

• Early application permitted. Apply prospectively.

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ASU 2015-05 – Intangibles – Goodwill and Other – Internal-Use Software (Cloud Computing)

• Determine whether cloud computing arrangement contains a software license that should be accounted for as internal-use software.– software as a service, platform as a service, infrastructure as

a service, and other similar hosting arrangements• If contains a software license:

– Account for fees related to software license element consistent with acquisition of software license under ASC 350-40.

– Similar to accounting for other licenses and intangible assets• If does not contain a software license:

– Account for arrangement as a service contract

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• Arrangement contains a software license if both the following are met:– The customer has the contractual right to take possession

of the software at any time during the hosting period without significant penalty.

– It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

• “Without significant penalty” defined as:– the “ability to take delivery of the software without

incurring significant cost” – the “ability to use the software separately without a

significant diminution in utility or value.”

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• Public - effective for annual periods (and interim periods therein) beginning after December 15, 2015;

• Non-public - effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016.

• Early adoption permitted.• Apply retrospectively or prospectively.

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ASU 2015-07 - Fair Value Measurement

• Permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value (NAV) per share of the investment.– No longer required to classify in fair value hierarchy,

however should include in the total fair value of investments in order to reconcile to balance sheet.

• Currently, investments valued using NAV are categorized within the fair value hierarchy on the basis of whether the investment is redeemable with the investee at NAV on the measurement date, never redeemable with the investee at NAV, or redeemable with the investee at NAV at a future date

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ASU 2015-07- Fair Value Measurement

• Effective Date– Public Entities• Fiscal years beginning after December 15, 2015, and

interim periods within that fiscal year– Nonpublic Entities• Fiscal years beginning after December 15, 2016, and

interim periods within that fiscal year

• Transition– Apply retrospectively– Early adoption permitted

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ASU 2015-14 – Revenue from Contracts with Customers

• Defers the effective date of the new revenue recognition guidance.• Public business entities, certain not-for-profit entities, and certain

employee benefit plans – Apply the guidance to annual reporting periods beginning after December 15,

2017, including interim reporting periods within that reporting period. – Earlier application is permitted only as of annual reporting periods beginning

after December 15, 2016, including interim reporting periods within that reporting period.

• All other entities – Apply the guidance to annual reporting periods beginning after December 15,

2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.

– Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period, or an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which an entity first applies the guidance.

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Insurance Matters Update – Long Duration Contracts Targeted Improvements

• FASB currently in redeliberations• Considering what method should be used to calculate and

record the effect of updating assumptions for liability for future policy benefits for traditional long-duration contracts and limited-pay contracts.– Occurs during Q4 of the fiscal year

• Provision for adverse deviation is not included in the calculation of liability.

• FASB decided that updating of cash flow assumptions using a retrospective approach.

• FASB decided that updating of discount rate assumptions using an immediate approach.

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• Under this assumption update method, a revised net premium ratio is calculated as of contract inception using actual historical experience and updated future cash flow assumptions.

• The revised net premium ratio is then applied to derive a cumulative catch-up adjustment to be recorded in current-period earnings.

• In subsequent periods, the revised net premium ratio is used to accrue the liability for future policy benefits.

• As a result of the Board’s prior decision to eliminate premium deficiency testing, the net premium ratio is capped at 100 percent so that losses are not deferred into future periods.

• The net premium ratio is not updated for discount rate assumption changes. Rather, the effect of discount rate changes is recorded immediately in other comprehensive income.

• The amount included in accumulated other comprehensive income represents the difference between the carrying amount of the liability for future policy benefits measured using updated discount rates and locked-in rates at contract inception.

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• Discount rate– If using an expected investment yield under existing GAAP,

discount rate would be a rate based on a portfolio of high-quality, fixed-income securities

• Amortization of DAC– Certain investment contracts• Use effective interest method

– Other types of long-duration contracts• Amortize of the expected life of a book of contracts in

proportion to the amount insurance inforce.

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• Disclosures– Disaggregated balance of the liability for future policy benefits and the

weighted average discount rates used to measure the liability for future policy benefits in time bands and any additional information about amounts and rates within the time bands provided that significantly affect the discount rates

– Disaggregated quantitative and qualitative information about the methods and inputs used to develop the measurement of the liability for future policy benefits, including disclosure of assumptions used (such as discount rate, mortality, morbidity, termination [lapse], and expense assumptions)

– Disaggregated reconciliations from the opening to the closing balance of the liability for future policy benefits, with separate disclosure of changes in the liability for future policy benefits due to new contracts, benefit payments, changes in assumptions, and derecognition of contracts.

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Lease Accounting Update

• Requires most leases to be recorded on the balance sheet.• Modified retrospective adoption will be required for

adoption.• Elimination of current guidance for build-to-suit transactions.• Transition guidance for build-to-suit transactions and

leaseback transactions. • Affirmation that a lessee should not reassess variable

payments based on an index or rate unless the lease liability has to be remeasured for other reasons (e.g. change in lease term)

• Expect new standard second half Q4 2015.• Effective date has not been decided.

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Other Pending GAAP Updates

Topic Status Update

Accounting for Financial Instruments: Classification and Measurement

Final Standard Q4 2015

Accounting for Financial Instruments: Hedging

Exposure Draft Q4 2015

Accounting for Financial Instruments: Impairment


Accounting for Measurement Period Adjustments in a Business Combination


Clarifying the Definition of a Business Exposure Draft Q4 2015

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Q&AContact Info

David Berry, CPAManager

[email protected] (O)404-862-5345(C)

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