A request to establish a process that might reject certain disclosures in mutual insurers’ financial statements was in effect denied Tuesday afternoon by the NAIC’s Statutory Accounting Principles and NAIC/AICPA Working Groups.

Known as “GAAP-like” disclosures, the additional items of accounting information are present because the accounting profession generally enforces its presence in financial statements of non-public insurers that are not subject to generally accepted accounting principles. The addition of such disclosures is particularly relevant in a period of declining investment value because of GAAP’s requirement for disclosure of fair-value information on invesments. Non-public insurers, including mutuals, will presumably be required this year to include the fair-value information, despite not being subject to GAAP.

The joint meeting of the two committees of regulators, in fact, demurred in initiating any effort that might appear to constrain auditors from exercising judgment on the adequacy of information in non-public insurers’ financial statement. That was consistent with assertions of representatives of the American Institute of Certified Public Accountants, who said the accounting profession’s standards for auditors would operate, whether the financial statements they audit were those of entities that follow GAAP or statutory accounting or another system of accounting.

Deborah Whitmore, one of the AICPA representatives who joined the meeting by teleconference, said that, whether for a stock company (using GAAP) or not, “The user [of the financial statements] would want the information.” Auditors must conform, she and others related, to auditing standards that do not make distinction between GAAP and other systems of accounting, including the statutory accounting that states use as promulgated by the NAIC.

Statutory accounting as created by the states and the NAIC is a separate but parallel system in which GAAP accounting pronouncements are regularly considered for addition to statutory accounting; if accepted, they are usually modified in some degree. The NAIC’s compendium of accounting guidance says in its Preamble that GAAP accounting does not become part of statutory accounting until and unless the NAIC has accepted it. That assertion of separateness is one reason for the request, made by the Blue Cross/Blue Shield association, to preclude auditors from requiring GAAP-like disclosures in financial statements of non-public insurers.

A Blue Cross/BlueShield representative seeking to emphasize the separateness of the statutory accounting world noted for the regulators, “We do have a professional body acting as a standard setter.” He added that “The NAIC is the primary user of statutory financial statements.”

Virginia regulator Doug Stolte, chair of the NAIC/AICPA Working Group, suggested that he did not want to get in the way of auditors. “I fear impairing the professional judgment of the auditor.”

About GAAP-like disclosures, one other regulator asked AICPA representatives during the meeting, “Will you put these in regardless?” Answers of the AICPA representatives affirmed that hypothesis.

The two NAIC committees will work with the AICPA on illustrative disclosures on fair-valuing consistent with GAAP’s SFAS No. 157. Those will be published on the NAIC’s website at some time.

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