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 Principal Johnson Lambert LLP Johnson Lambert LLP 2

Agenda  Statutory Accounting Update for P&C  Auditor’s Update  Tax Update  Tax Update  Questions and Answers 3

Statutory Accounting Update for P&C S b t Substantive Change ti Ch Non substantive Non-substantive Changes NAIC Summer Meeting Update Pipeline 4

Statutory Update - Substantive Change SSAP No.104R – Share-Based Payments What about non-employees? What about non employees? 5

Statutory Update - Substantive Change  SSAP No.104R – Share-Based Payments Th The NAIC adopted, with modification, the GAAP guidance as NAIC d t d ith difi ti th GAAP id 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 •Requires the midpoint of range to be used for estimation R i th id i t f t b d f ti ti (compared to low point) 6

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 •Insurer must submit annual filing to the SVO including I t b it l fili t th SVO i l di audited financials of the finance agent 7

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 − Make-whole not considered for premium/discount M k h l t id d f i /di t 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 8

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 •Applies GAAP definition of a benchmark interest rate A li GAAP d fi iti f b h k i t t t •Deletes prior guidance requiring the same benchmark interest rate for similar hedges g 9

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 10

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 11

Statutory Update - Non-substantive Changes  FHLB reporting and disclosure changes •Effective January 1, 2014 Effective January 1 2014 Impacts multiple SSAPs •SSAP No. 1 – Disclosure of Accounting Policies, Risks SSAP N 1 Di l f A ti P li i Ri k & 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 •SSAP No. 52 – Deposit-Type Contracts Deposit Type Contracts •SSAP No. 15 – Debt and Holding Company Obligations 12

Statutory Update - NAIC Summer Meeting 13

Auditor’s Update Using Internal Audit Application of Independence Rules to Affiliates Rules to Affiliates Non-attest Services 14

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 15

Auditor’s Update - Affiliate Independence Rules Management takeaways:  H l  Help your auditors remain independent dit i i d d t  Be prepared to provide detailed documentation of all affiliates 16

Auditor’s Update - Non-attest Services Management takeaways:  M  Management’s responsibilities t’ ibiliti  What non-attest provider can/can’t do 17

Tax Update  Valuation Allowance and UTP  SSAP 101  SSAP 101 – Common Pitfalls Common Pitfalls  Recent Tax Cases  New/Proposed Laws 18

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 19

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; • projections of future taxable income; j ti f f t t bl i • income from tax planning strategies 20

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  SAP only filers have different disclosure and l fil h diff t di l d reporting than GAAP 21

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 22

Tax Sharing Agreements  Three Basic Reasons for the agreements:  I  I. Earnings and profits Earnings and profits  II. Stock Basis  III. To determine how to split the actual liability among entities 23

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  Acuity supplied substantial evidence to  A it li d b t ti l id t support position and IRS did not  Again, looked to NAIC approved annual  A i l k d t NAIC d l statement for starting point 24

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 otherwise 25

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 26

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 27

New Tax Laws  Tangible Property Regs – Main Focus • Materials and Supplies (1.162-3) M t i l d S li (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 of tangible property (1.263(a)-2) • Amounts paid for the improvement of tangible ou ts pa d o t e p o e e t o ta g b e property (1.263(a)-3) 28

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 29