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.
