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13.3 Statutory accounting setting through NAIC
Publication date: 31 Jan 2021
us Insurance Guidance
The National Association of Insurance Commissioners (NAIC) is the US standard-setting and regulatory support organization created and governed by the insurance commissioners from the 50 states, the District of Columbia, and five US territories. The NAIC commissioners establish standards that are adopted by the states, conduct peer review, and coordinate regulatory oversight of the states. The commissioners, assisted by NAIC staff and the state insurance departments, form the national system of state-based insurance accounting and regulation in the US.
The NAIC operates using a hierarchy of committees, task forces, working groups, and subgroups, which meet in person and via conference call throughout the year. The groups discussed below develop and maintain statutory accounting and reporting and investment valuation.
- Financial Condition Committee
The Financial Condition Committee acts as a central forum and coordinates solvency-related considerations relating to accounting practices and procedures, blanks, valuation of securities, financial analysis, multi-state examinations, and examiner training, and issues concerning insurer insolvencies and insolvency guarantees. - Accounting Practices and Procedures Task Force
The objective of the Accounting Practices and Procedures Task Force is to identify, investigate, and develop solutions to accounting problems. The task force approves updates to the NAIC Accounting Practices and Procedures Manual (AP&P Manual) proposed by the Statutory Accounting Principles Working Group (SAPWG). The AP&P Manual provides insurers the basis for preparing financial statements for financial regulation purposes. The task force also studies “innovative insurer accounting practices,” which affect the ability of state regulators to determine the true financial condition of insurers. - Statutory Accounting Principles Working Group
The SAPWG is responsible for developing and adopting interpretation revisions to the AP&P Manual. It issues or amends Statements of Statutory Accounting Principles (SSAPs). An interpretation to an existing SSAP may be developed to provide timely application, interpretation, or clarification guidance.
When new GAAP is issued, the SAPWG considers whether to accept, reject, or accept with modification the new guidance. The SAPWG’s analysis of GAAP guidance can sometimes lag significantly after finalization of the GAAP guidance. - Valuation of Securities Task Force
The objective of the Valuation of Securities Task Force (VOS) is to provide regulatory leadership and insight with respect to NAIC’s credit assessment process for securities owned by insurance companies. The VOS has oversight of the Securities Valuation Office (SVO) and the Structured Securities Group and updates the Purposes and Procedures Manual of the NAIC Investment Analysis Office for changes in investment accounting and reporting requirements.
The SVO is responsible for the day-to-day credit quality assessment and valuation of securities owned by insurance companies, while the SSG is responsible for the analysis of residential mortgage-backed securities and commercial mortgage-backed securities owned by insurance companies and subject to SSAP 43 Revised, Loan-Backed and Structured Securities.
13.3.1 NAIC statutory hierarchy
The NAIC has adopted a statutory hierarchy that displays the order of priority for the different types of guidance available. Level 1 is the most authoritative and should be considered first. If guidance in level 1 does not specify the accounting for a particular transaction or event, the next level down should be considered until the most relevant accounting guidance is identified. The hierarchy is not intended to preempt state legislative and regulatory authority.
- Level 1 – SSAPs, including US GAAP reference material adopted by the NAIC
- Level 2 – Consensus positions of the Emerging Accounting Issues Working Group as adopted by the NAIC (INTs adopted prior to 2016), interpretations of existing SSAPs as adopted by the SAPWG (INTs adopted in 2016 and beyond)
- Level 3 – NAIC Annual Statement Instructions, Purposes and Procedures Manual of the NAIC Investment Analysis Office
- Level 4 – Statutory Accounting Principles Preamble and Statement of Concepts
- Level 5 – Sources of nonauthoritative GAAP accounting guidance and literature, including:
- Practices that are widely recognized as prevalent either generally or in the industry
- FASB Concepts Statements
- AICPA guidance
- International Financial Reporting Standards
- Pronouncements of professional associations or regulatory agencies
- Technical Information Service Inquiries and Replies included in the AICPA Technical Practice Aids
- Accounting textbooks, handbooks, and articles.
Note that use of Level 5 guidance for statutory accounting would likely represent a state prescribed or permitted practice because Level 5 literature has not been explicitly adopted by the NAIC.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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