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October 10, 2024

Beyond the Rules: Principles-Based Bond Accounting for Statutory Insurers

The National Association of Insurance Commissioners (NAIC) has finalized the Principles-Based Bond Definition (PBBD) Project, a significant milestone that modernizes statutory accounting principles for bonds. This project revises SSAP No. 26R, 43R, and 21R to adopt a principles-based approach that emphasizes economic substance over legal form. Effective January 1, 2025, the new definitions require insurance companies to re-evaluate their bond portfolios to ensure compliance with the updated guidance.

Overview of Principles-Based Bond Guidance

Accurate and Flexible Framework

  • Provides specific criteria for evaluating bond features, such as principal repayment and credit quality.
  • Enhances the transparency and reliability of financial statements in the insurance industry.

Investment Scrutiny

  • Companies must thoroughly analyze bond characteristics to meet new definitions.
  • Adjustments to reporting practices may be necessary.

Documentation and Compliance

  • Emphasizes clear documentation and consistent application of new principles.
  • Detailed records of assessment processes and decisions are crucial.

Support and Resources

  • NAIC offers educational materials, workshops, and consultations.
  • Aims for smooth and effective adoption of the PBBD framework.

Implementation Timeline

  • Effective January 1, 2025.
  • Continuous monitoring and updates are recommended.

To learn more about how Johnson Lambert can assist your organization through this transition, contact our team today.

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Lauren Darr

Lauren Darr

Partner

Rachel Ferguson

Rachel Ferguson

Mitchell Lipham

Mitchell Lipham

Senior Manager

Haley Louzader

Haley Louzader

Manager

Beyond the Rules: Principles-Based Bond Accounting for Statutory Insurers

The National Association of Insurance Commissioners (NAIC) has finalized the Principles-Based Bond Definition (PBBD) Project, a significant milestone that modernizes statutory accounting principles for bonds. This project revises SSAP No. 26R, 43R, and 21R to adopt a principles-based approach that emphasizes economic substance over legal form. Effective January 1, 2025, the new definitions require insurance companies to re-evaluate their bond portfolios to ensure compliance with the updated guidance.

Overview of Principles-Based Bond Guidance

Accurate and Flexible Framework

  • Provides specific criteria for evaluating bond features, such as principal repayment and credit quality.
  • Enhances the transparency and reliability of financial statements in the insurance industry.

Investment Scrutiny

  • Companies must thoroughly analyze bond characteristics to meet new definitions.
  • Adjustments to reporting practices may be necessary.

Documentation and Compliance

  • Emphasizes clear documentation and consistent application of new principles.
  • Detailed records of assessment processes and decisions are crucial.

Support and Resources

  • NAIC offers educational materials, workshops, and consultations.
  • Aims for smooth and effective adoption of the PBBD framework.

Implementation Timeline

  • Effective January 1, 2025.
  • Continuous monitoring and updates are recommended.

To learn more about how Johnson Lambert can assist your organization through this transition, contact our team today.