August 2016

ACCOUNTING DEVELOPMENTS

Final Accounting Standard for Certain Cash Receipts and Payments

On August 26, FASB issued Accounting Standards Update No. 2016-15, concluding its Emerging Issues Task Force (EITF) review of the classification of certain cash receipts and cash payments on the Statement of Cash Flows (Topic 320).

This review included a specific inquiry as to the appropriate classification for cash receipts and payments arising from BOLI programs. The final standard affirmed, without change, the proposed standard on this topic.

FASB has added ASC 230-10-45-21C, which states:

Cash receipts resulting from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, shall be classified as cash inflows from investing activities. Cash payments for premiums on corporate-owned life insurance policies, including bank-owned life insurance policies, may be classified as cash outflows for investing activities, operating activities, or a combination of cash outflows for investing and operating activities.

The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017. Early implementation is permissible.

OTHER DEVELOPMENTS

FHFA Single Security Initiative

On July 7, the Federal Housing Finance Administration (FHFA) released An Update on Implementation of the Single Security and the Common Securitization Platform. The Single Security is a joint initiative between Fannie Mae and Freddie Mac, under the direction of FHFA, to develop a single mortgage-backed security that will be issued by Fannie Mae and Freddie Mac to finance fixed-rate mortgage loans backed by one- to four-unit single-family properties.

It is worth noting that both Fannie Mae and Freddie Mac will be issuers of the Single Security; as such the guarantor will continue to be the issuing enterprise. However, one goal is to combine the TBA markets (i.e., collateral issued by either agency could be delivered into a TBA). It is our understanding that this could have some significant implications for MBS BOLI portfolios that are active in the TBA market. Among other possible concerns, it may be difficult to manage issuer concentrations (e.g., for IRC §817 diversification purposes) if either agency’s collateral can be delivered.

We will continue to monitor this development.

NAIC Launches Life Insurance Policy Locator Application

On August 26, the NAIC announced that it was launching a Life Insurance Policy Locator application. The news release indicated that the application will serve Americans who may be life insurance beneficiaries by offering an easy-to-use tool to help find lost or forgotten policies.

At least $1 billion in benefits from life insurance policies are unclaimed, according to Consumer Reports.

It appears that much of this application is still under development; however, it currently provides a useful starting point for determining if a lost policy exists in a specific state. As an example, New York links to a NY DFS website that provides instructions on submitting a request.

At this time, it appears uncertain whether this application will be of any use to corporate owners of insurance.