The statutory basis statement of cash flow should reconcile the change in the sum of cash, cash equivalents, and short-term investments, and should be prepared using the direct method, in accordance with SSAP 69. The cash, cash equivalents, and short-term investments total appearing on the statement of cash flow should agree with the sum of those three items appearing as one line on the balance sheet.

For statutory reporting purposes, cash reported on the balance sheet includes money (cash on hand), negotiable money orders, bank drafts and checks (received but not deposited), and balances on deposit with banks after any outstanding items have been deducted. Cash on deposit with banks includes demand deposits and non-negotiable temporary investments in banks, such as savings accounts, demand certificates of deposit, and funds in transit at the statement date. Demand certificates of deposit are non-negotiable certificates of deposit that can be redeemed prior to maturity, usually with an "early- withdrawal" penalty. Cash would include any interest that has been credited to bank accounts but would exclude interest accrued but not credited. Interest accrued but not credited would be included with interest income or investment income due and accrued. In some states, interest accrued on demand certificates of deposit may be nonadmitted to the extent of any early-withdrawal penalties. Overdrafts should also be included in cash on deposit. Cash equivalents include money market mutual funds registered under the Investment Company Act of 1940 and regulated under its rule 2a-7.

For statutory reporting purposes, short-term investments include any investment that had a contractual maturity of one year or less as of the date of acquisition. Included with short-term investments are any negotiable bank certificates of deposit acquired within one year of maturity. Short-term investments are generally valued at amortized cost. Accumulated accretion or amortization of purchase discount or premium is included in the balance of short-term investments.

The statutory cash flow statement is prepared on a direct basis, whereas, for GAAP reporting purposes, most companies use the indirect format. See Figure IG 13-3 for the basic format of the statutory statement of cash flows.

Figure IG 13-3
Direct basis statutory cash flow statement

The line items in Figure IG 13-3 should generally be included in the statutory statement of cash flow. Note that the Annual Statement Instructions include "worksheets" that show the components of each line of the cash flow statement.

Cash flow from operations should generally be supported at a minimum by: premiums collected, benefits/claims paid, and other expenses paid. Cash flow related to owners (e.g., capital contributions, shares sold or redeemed, dividends paid) should normally be disclosed on the face of the statement.

Only those transactions involving cash, cash equivalents, and short-term investments should be included in the cash flow statement. Disclosure of non-cash items affecting assets and liabilities was expanded to include non-cash operating items, in addition to financing and investing items. Per discussion with NAIC staff, normal and recurring non-cash operating items, such as depreciation and amortization, changes in reserves that do not result in cash, changes in deferred taxes, or impairment of assets, need not be disclosed. Payment of premiums by a policyholder by transferring bonds is not a cash transaction and should not be included in the statement of cash flows.