Insurance Regulatory Review: September 2025

The Insurance Regulatory Review is your source for key updates in statutory accounting and other insurance regulatory insights. This September 2025 edition highlights select substantive changes recently issued—and currently under consideration—by the NAIC’s Statutory Accounting Principles Working Group (SAP WG).

As the highest authority in the statutory accounting hierarchy, any Statement of Statutory Accounting Principles (SSAP) carries significant implications for insurers’ financial reporting. Below, we’ve summarized the most impactful developments to help you stay informed and prepared.

Adopted Substantive Pronouncements from May 22, 2025, Interim SAP WG Meeting

1. Reporting of Funds Withheld and Modified Coinsurance (Modco) Assets (Ref # 2024-07)

• Effective Date:  December 31, 2025
• Relevant Insurance Product Lines: Life Insurance Companies
• Key Changes:  This agenda item makes it easier to identify assets that are subject to a funds withheld or modco arrangements through updated reporting in the financial statements. The statutory accounting for these arrangements are not impacted, however a new subpart is added to Schedule S of the Annual Statement for Life Insurers to report all assets held under a funds withheld arrangement by NAIC designation.  Those assets as part of a modco arrangement will also have a separate designation.

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2. Reinsurer Affiliated Assets (Ref # 2025-05)

• Effective Date:  December 31, 2025
• Relevant Insurance Product Lines: Life Insurance Companies
• Key Changes:  This agenda item proposes to expand Note 5L of the Quarterly and Annual Statement to report the statutory book adjusted carrying value of those assets that are restricted as they are part of either a modco or a funds withheld reinsurance arrangement.    The disclosure will be in a tabular format based on the investment schedule, which the assets are housed, and the following related party codes shown below on the basis of whether the investment is related to/affiliated with the modco or funds withheld reinsurer:

1. Direct loan or direct investment (excluding securitizations) in the reinsurer for which the reinsurer represents a direct credit exposure

2. Securitization or similar investment vehicles such as mutual funds, limited partnerships, and limited liability companies involving a relationship with the reinsurer as sponsor, originator, manager, servicer, or other similar influential role, and for which 50% or more of the underlying collateral represents investments in or direct credit exposure to the reinsurer.

3. Securitization or similar investment vehicles such as mutual funds, limited partnerships, and limited liability companies involving a relationship with the reinsurer as sponsor, originator, manager, servicer, or other similar influential role, and for which less than 50% (including 0%) of the underlying collateral represents investments in or direct credit exposure to the reinsurer.

4. Securitization or similar investment vehicles such as mutual funds, limited partnerships, and limited liability companies in which the structure reflects an in-substance related party transaction to the reinsurer but does not involve a relationship with the reinsurer as sponsor, originator, manager, servicer, or other similar influential role.

5. The investment is identified as related to the reinsurer, but the role of the reinsurer represents a different arrangement than the options provided in choices 1-4.

6. The investment is not related/affiliated to the reinsurer.

3. Hypothetical IMR Memo (Exposure 2023-14, Amendments to SSAP 7)

• Exposure Public Comment Period: June 6, 2025
• Relevant Insurance Product Lines: Life, Accident, and Health/Fraternal Insurers
• Key Changes: This pronouncement clarifies the reporting requirements for the Interest Maintenance Reserve (IMR) and removes the requirement to calculate hypothetical IMR and subsequent future amortization as part of the reporting of life reinsurance (for example, a coinsurance with funds withheld arrangement).  IMR is a reserve liability that represents the amount of deferred realized gain or loss associated with the changes in interest rates for a block of assets that were sold or transferred, associated with a reinsured or transferred block of business.  These deferred gains are amortized into investment income in accordance with the NAIC’s Annual Statement Instructions.

Specifically, hypothetical IMR would identify the future IMR balance and future amortization that would result if remaining assets associated with a block of liabilities were sold subsequent to a reinsurance transaction allocable to a specific block of business.   It is important to note that these assets are not necessarily the same as the assets transferred as part of a reinsurance transaction.       

4. Leases – Sale Leaseback Accounting (Ref #2025-01)

• Exposure Deadline: June 6, 2025
• Relevant Insurance Product Lines: All Product Lines
• Key Changes:  Prior to this exposure draft, an insurer would be able to sell a non-admitted asset (i.e. restricted cash) to an unaffiliated third party, but as part of the transaction, the cash the seller received was to be held in such a manner that the selling insurance company would not be able to access the cash until the leaseback was fully paid off in the future.   This pronouncement establishes that sale leasebacks with restricted cash proceeds do not qualify for sale leaseback accounting.  Instead, such transactions must be accounted for using the financing method, preventing misclassification of financial arrangements, as the seller would not have ready access to cash as a result of the transaction.

5. Induced Conversions of Convertible Debt Instruments (Ref #2025-02)

• Exposure Public Comment Period Deadline: June 6, 2025
• Relevant Insurance Product Lines: Life Insurance, Annuities, and Property & Casualty Insurers
• Key Changes: This update aligns statutory accounting with Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2024-04 Debt- Debt with Conversion and Other Options (Subtopic 470-20), specifically addressing induced conversions of convertible debt instruments.  A conversion is considered “induced” when a convertible debt instrument is converted pursuant to the terms that reflect changes made by the issuer to the conversion privileges provided in the terms of the debt at issuance for the purposes of inducing conversion.  The debt instrument may be converted into cash, other assets, common stock (or a combination thereof). 

ASU 2024-04 was previously rejected under NAIC Statutory accounting; however, some of the language that pertains to the recognition of accepted inducement offers and the types of property that can be received from convertible debt instruments has now been adopted.  The NAIC notes that induced conversions of convertible debt issuances are not expected to be prevalent in the insurance industry, and the timing of recognition is not expected to vary significantly.  

Under ASU 2024-04, to account for a settlement of a convertible debt instrument as an induced conversion, an inducement offer is required to provide the debt holder with, at a minimum, the consideration (in form and amount) issuable under the conversion privileges provided in the terms of the instrument.   The current statutory guidance under SSAP15 requires recognition of an expense for the fair value of recognition received in order to induce conversion.  Additional clarifications have been made that an inducement offer shall be recognized when the offer is accepted by the debt holder, instead of when the inducement was issued, regardless if the debt issuer or the debt holder initiated the inducement.

6. Residential Mortgage Loans Held in Delaware Statutory Trusts (Ref # 2025-13)

• Exposure Public Comment Period Deadline: June 23, 2025
• Relevant Insurance Product Lines: All Product Lines
• Key Changes: This pronouncement was issued given the increased prevalence of using Delaware Statutory Trusts (DSTs) for holding mortgage loans.  Delaware statutory trusts are distinct from common law trusts as they have significant increased flexibility in structuring the trust.  This agenda items proposes developing accounting and reporting guidance for qualifying trust structures, regardless of the state of domicile to SSAP 37 – Mortgage Loans.  Prior to this guidance, DSTs were reported as investments in subsidiaries under SSAP97, which was limited and allowed companies to bypass SSAP accounting or admittance requirements and NAIC designation determinations, and limited implications to an insurer’s risk-based capital calculation who owned the subsidiary.  All statutory trusts owned by the insurer are required to be reported on Schedule Y, and any mortgage loans held in statutory trusts are required to be reported separately on Schedule B in accordance with the NAIC’s Annual Statement Instructions. Mortgage loans should be reported at amortized cost. The following disclosures shall be made for mortgage loans acquired through a qualifying investment in a statutory trust:
  • Description of a statutory trust, with the U.S. states listed for each state in which the statutory trust is qualified to do business
  • Material litigation and any kind of state or federal regulatory reviews and or action concerning the statutory trust(s)
  • Financing transactions of any sort which are secured, directly or indirectly, by statutory trust assets
  • Total of residential mortgages held in qualifying statutory trusts, disaggregated by loan type:
    • In Good Standing
    • Restructured
    • Overdue Interest Over 90 Days Not in the Process of Foreclosure
    • In the Process of Foreclosure

7. Net Negative (disallowed IMR) (Ref # 2025-13)

• Exposure Public Comment Period Deadline: July 14, 2025
• Relevant Insurance Product Lines: Life, Accident, and Health
• Key Changes: This change expands the guidance on reporting IMR, as most of its guidance was reported in the NAIC’s Annual Statement Instructions for Life and Health Insurance entities.  As it stands, this guidance is set to sunset on December 31, 2025, but may be extended in one year increments.  The net IMR balance in a life insurer’s general account, if a positive amount, is reported on line 9.4 of page 3 of the Life, Accident, and Health Annual Statement (i.e., Blue Book).   A negative IMR (which is disallowed) represents net interest rate realized losses and is reported as a miscellaneous other-than invested write-in asset in the general account of a life insurer and is typically a non-admitted asset.  

The only exception to not disallowing negative IMR is if there is a covering net positive IMR in the general account.  In this instance, the negative net IBNR is reported as a contra-liability.  IMR balances between the general and separate accounts of a life insurer are separate and distinct, and the IMR balances represent the investment activity that occurred specifically in those accounts.  Reporting entities may report net negative IMR balances as admitted assets with the following restrictions shown below:

a. The reporting entity is required to have an RBC at 300% of its authorized control level after an adjustment to total adjusted capital to remove any positive goodwill, EDP equipment and operating system software, net deferred tax assets, and admitted net negative IMR.

b. Admittance of net negative IMR shall exceed the lesser of the following:

• 10% of the current period unadjusted capital and surplus in the general account or;
  • 10% of the adjusted general account capital and surplus, excluding any net positive goodwill, EDP equipment/software, net deferred tax assets, and net negative IMR and;

c. The net negative IMR does not include losses from derivatives that were reported at fair value prior to derivative termination unless the reporting entity historically followed the same process for interest rate hedging.

8. Risk Transfer Analysis on Combination Reinsurance Contracts (Ref# 2024-06)

• Exposure Public Comment Period Deadline: July 14, 2025
• Relevant Insurance Product Lines: Life, Accident, and Health
• Key Changes:  This change addresses a December 2023 referral by the NAIC’s Valuation Analysis Working Group (VAWG) regarding reinsurance risk transfer and reserve credit when there is interdependence of the types of reinsurance contained in one reinsurance agreement (i.e., a combination reinsurance contract).  Specifically, this agenda item addresses the accounting for combination reinsurance treaties.  A combination reinsurance treaty is a reinsurance treaty that includes both coinsurance (or proportional reinsurance) and yearly renewable term (YRT) components that are applicable to different underlying life insurance policies yet contain an aggregate, interdependent, shared experience refund as well as a provision allowing the cedant to separately recapture the separate types of reinsurance as long as both components are reported.  In economic substance, these reinsurance agreements resemble a non-proportional reinsurance agreement.  What was noted by the VAWG is that combination reinsurance agreements may not meet the insurance risk transfer criteria outlined in Appendix No. 791 (A-791) if they were assessed as one collective agreement and therefore preclude reinsurance accounting treatment. The VAWG noted that the risk transfer components of the coinsurance piece and the YRT piece were assessed separately for insurance risk transfer.

The VAWG recommends that risk transfer be evaluated collectively for both types of reinsurance under a combination reinsurance contract instead of separately, as is current practice.  A-791 contains guidance that limits the amounts paid to the reinsurer to the income realized on the underlying reinsured policy.  Should the reinsurer charge more than the income being realized as part of the combination reinsurance agreement, it fails the criteria in A-791. 

It also mentions that all of the significant risks of the reinsured business should be transferred.  In a combination reinsurance agreement, it was noted by VAWG that significant parts of the coinsurance risk are not transferred due to the shared experience refund and aforementioned cedant recapture provisions, yet full reserve credit is being taken for the coinsurance component.  The SAP WG’s view is that this does transfer the actual full actuarial risks for the business being reinsured and reinsurance credit should only be calculated based upon the actual risks being transferred.

How Centri Can Help

Centri has a team of seasoned insurance professionals that can help navigate the complexities of adopting the new statutory accounting pronouncements, including obtaining the views of industry best practices that require judgment. We also have onshore and offshore teams that can support outsourced STAT statement preparation, leveraging automation where practical. Contact us to learn how we can support your company.