SAPWG: Distributions to Parent/Shareholder – a Clarification (SSAP No. 72)

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This section of SAPWG discussion minutes: 5 minutes

JLK Rosenberger’s summary article below: 1 minute, 40 seconds

JLK Rosenberger’s Hot Take below: 15 seconds

JLK Rosenberger’s Hot Take:  The handling of dividend payments from subsidiary to parent or shareholder(s) has experienced diverse accounting application caused by ambivalent insurance company interpretations or differing individual state interpretations. Even though the creation of negative surplus via such actions would appear to be clear as to accounting treatment, the NAIC has observed that clear-cut definition is required to circumvent wavering accounting presentations.

Status

On August 4, 2018, the SAPWG categorized this item as nonsubstantive and moved it to the active listing as a proposed revision to SSAP No. 72.

Details

the absence of statutory guidance on reporting dividends to a parent or shareholder when the insurance company has negative unassigned surplus led to a divergence in the state-recommended treatment of such distributions. Modifications to SSAP No. 72 – Surplus and Quasi-Reorganizations have clarified the difference between dividends and other distributions as well as provided statutory guidance on accounting for and reporting distributions in excess of unassigned funds. Distribution, or a portion thereof, to a parent or stockholder that would result in a negative balance of unassigned surplus represents a return of capital and shall be charged directly to gross paid in and contributed surplus, and the recipient’s adjusted cost basis in the company will be reduced by the distribution amount.

View the SAPWG discussion minutes. 

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If you have questions about the impact of your insurance company’s distributions to parent/shareholders, JLK Rosenberger can help. Call us at 818-334-8623, or click here to contact us. We look forward to speaking with you soon.