SSAP Update What you need to know for 2014 y Carolina IASA - - PowerPoint PPT Presentation

SSAP Update

What you need to know for 2014 y

Carolina IASA

Presenters

Brandy Vannoy, CPA Scott Hall, CPA Partner Johnson Lambert LLP Principal Johnson Lambert LLP

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Agenda

• Statutory Accounting Update for P&C
• Auditor’s Update
• Tax Update
• Tax Update
• Questions and Answers

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Statutory Accounting Update for P&C

S b t ti Ch Substantive Change Non substantive Non-substantive Changes NAIC Summer Meeting Update Pipeline

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Statutory Update - Substantive Change

SSAP No.104R – Share-Based Payments

What about non-employees? What about non employees?

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Statutory Update - Substantive Change

• SSAP No.104R – Share-Based Payments

Th NAIC d t d ith difi ti th GAAP id The NAIC adopted, with modification, the GAAP guidance as reflected in Accounting Standards Codification 505-50 – Equity Payments to Non-Employees, effective December 31, 2014.

Modifications:

• Non-admits any prepaid assets
• Disallows the minimum value method

R i th id i t f t b d f ti ti

• Requires the midpoint of range to be used for estimation

(compared to low point)

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Statutory Update - Substantive Change

• SSAP No.105 – Working Capital Finance

Investments (WCFIs) Investments (WCFIs)

New SSAP allowing admitted asset treatment if certain conditions are met effective January 1 2014 conditions are met, effective January 1, 2014.

• WCFIs represent interests in short-term trade receivables

that insurers can purchase through a finance agent p g g

• Admitted assets with accounting similar to short-term

investments, if approved by the SVO/NAIC 1or 2 I t b it l fili t th SVO i l di

• Insurer must submit annual filing to the SVO including

audited financials of the finance agent

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Statutory Update- Non-substantive Changes

• SSAP No. 26 – Bonds, Excluding Loan-backed

and Structured Securities

• Effective: January 1, 2014
• Make-whole provision bond amortization period

M k h l t id d f i /di t −Make-whole not considered for premium/discount amortization unless we know issuer is going to call the bond before maturity

• Continuously callable bond premium amortization period

−Use first call date if lockout period exists −Expense entire premium at acquisition if no lockout Expense entire premium at acquisition if no lockout

• Callable bonds

−Yield to worst used for all callable bonds

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Statutory Update - Non-substantive Changes

• SSAP No. 86 – Accounting for Derivative

Instruments, Hedging, etc. g g

• Effective January 1, 2014
• Adopts ASU 2013-10
• Clarifies what qualifies as a benchmark interest rate (the

Fed Funds Effective Swap Rate) for hedge accounting A li GAAP d fi iti f b h k i t t t

• Applies GAAP definition of a benchmark interest rate
• Deletes prior guidance requiring the same benchmark

interest rate for similar hedges g

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Statutory Update- Non-substantive Changes

• SSAP No. 92 – Accounting for Postretirement

Benefits Other than Pension Benefits Other than Pension

• Effective January 1, 2014
• Non-substantive change which adopts ASU 2011-09

Non substantive change which adopts ASU 2011 09, Compensation- Retirement Benefits – Multiemployer Plans with limited disclosures

• Requires additional disclosures

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Statutory Update - Non-substantive Changes

• SSAP No. 97 – Investments in Subsidiary,

Controlled and Affiliated Entities

• Effective January 1, 2014
• Modifies “Determining the Valuation Method”

flowchart to reference the accounting for downstream holding companies downstream holding companies

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Statutory Update - Non-substantive Changes

• FHLB reporting and disclosure changes

Effective January 1 2014

• Effective January 1, 2014

Impacts multiple SSAPs SSAP N 1 Di l f A ti P li i Ri k

• SSAP No. 1 – Disclosure of Accounting Policies, Risks

& Uncertainties and Other Disclosures

• SSAP No. 30 – Investments in Common Stock

(excluding investments in common stock of subsidiary, controlled or affiliated entities

• SSAP No 52

Deposit Type Contracts

• SSAP No. 52 – Deposit-Type Contracts
• SSAP No. 15 – Debt and Holding Company

Obligations

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Statutory Update - NAIC Summer Meeting

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Auditor’s Update Using Internal Audit Application of Independence Rules to Affiliates Rules to Affiliates Non-attest Services

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Auditor’s Update - Using Internal Audit Management takeaways from SAS 128:

• If you have internal auditors, talk to your external

auditors about efficiencies

• Don’t be surprised if external auditor:
• Asks internal audit different questions than in previous

q p years

• Documents use of internal audit in engagement letter
• Asks internal audit to sign a representation letter

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Auditor’s Update - Affiliate Independence Rules

Management takeaways:

• H l

dit i i d d t

• Help your auditors remain independent
• Be prepared to provide detailed documentation
• f all affiliates

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Auditor’s Update - Non-attest Services Management takeaways:

• M

t’ ibiliti

• Management’s responsibilities
• What non-attest provider can/can’t do

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Tax Update

• Valuation Allowance and UTP
• SSAP 101

Common Pitfalls

• SSAP 101 – Common Pitfalls
• Recent Tax Cases
• New/Proposed Laws

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Valuation Allowance and UTP

• When do you need a Valuation Allowance

(VA)? (VA)?

• More likely than not (MLTN) that some portion of the DTA will

not be realized in the future

• MLTN = >50%
• Must consider VA before the admissibility test
• Gross deferred tax asset – VA = Adjusted gross deferred tax

asset

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Valuation Allowance and UTP

• Sources of taxable income that can be used

to support a conclusion that a DTA will be to support a conclusion that a DTA will be realized include:

• reversals of existing DTLs;

reversals of existing DTLs;

• carryback capacity under the tax law;

j ti f f t t bl i

• projections of future taxable income;
• income from tax planning strategies

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Valuation Allowance and UTP

• Uncertain tax position consideration is

required under SSAP 101 required under SSAP 101

• “More likely than not” threshold like GAAP
• SAP

l fil h diff t di l d

• SAP only filers have different disclosure and

reporting than GAAP

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SSAP 101 – Common Mistakes

• Carryback periods under 11a – Life vs P&C
• Maintain separate year analysis
• Maintain separate year analysis
• Keep reversal patterns updated
• Taxable Income forecasts need to be realistic
• Update taxable income available from PYs

p due to any carrybacks

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Tax Sharing Agreements

• Three Basic Reasons for the agreements:
• I

Earnings and profits

• I. Earnings and profits
• II. Stock Basis
• III. To determine how to split the actual

liability among entities

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Recent Tax Cases of Interest

• Acuity Mutual Insurance Co. v. Commissioner,

TC Memo 2013-209 TC Memo 2013 209

• Tax Court ruled in favor of taxpayer
• A

it li d b t ti l id t

• Acuity supplied substantial evidence to

support position and IRS did not

• A

i l k d t NAIC d l

• Again, looked to NAIC approved annual

statement for starting point

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Recent Tax Cases of Interest

• Acuity Mutual Insurance Co. v. Commissioner,

TC Memo 2013-209 TC Memo 2013 209

• Take-away: Memorandum decision but

reinforces the court’s reliance on reinforces the court s reliance on documentation to support position that loss reserves are ‘fair and reasonable’ and makes it more difficult for the IRS to argue

• therwise

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Recent Tax Cases of Interest

• State Farm v. Commissioner, No. 11–3478
• Seventh Circuit in US Court of Appeals did
• Seventh Circuit in US Court of Appeals did

not allow bad-faith damage award that was punitive as part of loss reserves punitive as part of loss reserves

• Portion of award related to compensatory

was included in loss reserves was included in loss reserves

• Court largely followed the NAIC guidance

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New Tax Laws

• Tangible Property Regs
• Final regulations issued September 2013
• Final regulations issued September 2013
• Effective January 1, 2014
• Early adopt for 2012 and 2013
• Goal was to simplify and provide more

p y p guidance

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New Tax Laws

• Tangible Property Regs – Main Focus

M t i l d S li (1 162 3)

• Materials and Supplies (1.162-3)
• Repairs and Maintenance (1.162-4)
• Capital Expenditures (1.263(a)-1)
• Amounts paid for the acquisition or production

p q p

• f tangible property (1.263(a)-2)
• Amounts paid for the improvement of tangible
• u ts pa d o t e

p o e e t o ta g b e property (1.263(a)-3)

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New Tax Laws

• Tangible Property Regs – De Minimis Capitalization
• Safe harbor at the invoice or item level
• Safe harbor at the invoice or item level
• $5,000 per invoice or item, if applicable

financial statement financial statement

• $500 per invoice or item, if no applicable

financial statement financial statement

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New Tax Laws

• Tangible Property Regs – Transition
• IRS expects that nearly all companies will
• IRS expects that nearly all companies will

have a change in their accounting method

• Transition guidance was issued in early 2014
• Transition guidance was issued in early 2014

in Revenue Procedure 2014-16 and 2014-17

• How to apply the regulations for years prior to
• How to apply the regulations for years prior to

2014

• Ch

f ti d

• Change of accounting procedures

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New Tax Laws

• Camp Tax Reform Proposal
• Reduce top corporate tax rate to 25%
• Reduce top corporate tax rate to 25%
• Repeal AMT and revise NOL rules
• Eliminates exclusion of performance-based

compensation from §162(m)

• Life reserves – increase in discount rate to

compute tax reserves

• Non-life reserves – increase in rate, loss

payment pattern lengthening, no company l ti

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election

New Tax Laws

• Camp Tax Reform Proposal – Continued…
• Increase in DAC percentages
• Change in proration rules
• Removes benefits for small life and non-life

insurers

• Limits COLI interest expense exception to 20%
• wners for new contracts
• Repeal of §847

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Brandy Vannoy, CPA Partner Scott Hall, CPA Principal Johnson Lambert

bvannoy@johnsonlambert.com

919-719-6417 Johnson Lambert

shall@johnsonlambert.com

919-719-6413