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We help insurers meet new regulatory and compliance accounting standards while managing costs, operational efficiencies, and the integration and implementation of systems and data across the finance, risk and actuarial functions.
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Bond classification guidance
In a move poised to streamline financial reporting, the revisions to the Statement of Statutory Accounting Principles (SSAP) No. 26R, Bonds, and SSAP No. 43R, Asset-Backed Securities, offer a clear framework for what constitutes a bond:
- A bond is now defined as a security that establishes a creditor relationship, features a fixed payment schedule and falls under the category of either an issuer credit obligation or an asset-backed security.
- To enhance reporting precision, Schedule D Part 1 will segregate traditional issuer obligation bonds from the more complex asset-backed securities.
- Securities that exhibit equitylike features or essentially represent ownership interests will transition to a new accounting and reporting classification under SSAP No. 21R, Other Admitted Assets, and Schedule BA.
This updated guidance, which is to be applied prospectively, will affect securities held from January 1, 2025, onward, marking a significant shift in the insurance industry’s approach to investment accounting.
Implementation considerations
With the clock ticking in the countdown to January 1, insurers are under pressure to conduct a risk-based impact assessment on their portfolios and brace for the ripple effects across accounting, capital, reporting and operations.
First, the shift from a rules-based to a principles-based classification system demands a strategic re-evaluation of accounting policies. Insurers are called upon to exercise discerning judgment at critical junctures, a change that carries weighty consequences for RBC calculations. Asset reclassification from Schedule D to Schedule BA could prompt insurers to reconsider their bond holdings and investment strategies, recalibrating their approach to align with the new regulatory landscape.
The reclassification also triggers a domino effect on disclosure and reporting, compelling insurers to capture and analyze new data sets. This evolution may require substantial updates to both infrastructure and systems, necessitating close collaboration with technology providers to maintain compliance with the updated reporting requirements.
And, from the onset of investment, classification assessments will become integral, directly influencing front-office trading protocols. The integration of these guidelines must be both fluid and faultless, necessitating the development of robust processes and controls to navigate this transformative period.