1. (a) The purpose of this section is to adopt statutory accounting principles, which will provide insurers and health maintenance organizations, including accountants employed or retained by these entities, guidance as how to properly record business transactions for the purpose of accurate statutory reporting. The March 2012 version of the Accounting Practices and Procedures Manual (Manual) published by the National Association of Insurance Commissioners (NAIC), with the exceptions and modifications set forth in subsections (c) and (d) of this section, will be utilized as the guideline for statutory accounting principles in Texas to the extent the Manual does not conflict with provisions of the Insurance Code or rules of the department. The commissioner reserves all authority and discretion to resolve any accounting issues in Texas. When determining the proper accounting treatment for an insurance or health plan transaction, the commissioner will refer to the sources in paragraphs (1) - (6) of this subsection in the respective order of priority listed. The sources in paragraphs (1) - (3) of this subsection preempt any contrary provisions in the Manual. The department rules preempting any contrary provisions in the Manual, include, but are not limited to: §§3.1501 - 3.1505, 3.1601 - 3.1608, 3.4505(f), 3.6101, 3.6102, 3.7001 - 3.7009, 3.9101 - 3.9106, 3.9401 - 3.9404, 7.7, 7.85, and 11.803 of this title (relating to Annuity Mortality Tables; Actuarial Opinion and Memorandum Regulation; General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves; Policy Reserves; Claims Reserves; Minimum Reserve Standards for Individual and Group Accident and Health Insurance; the 2001 CSO Mortality Table; Preferred Mortality Tables; Subordinated Indebtedness, Surplus Debentures, Surplus Notes, Premium Income Notes, Bonds, or Debentures, and Other Contingent Evidences of Indebtedness; Audited Financial Reports; and Investments, Loans, and Other Assets).

   1. (1) Texas statutes;
   2. (2) department rules;
   3. (3) directives, instructions, and orders of the commissioner;
   4. (4) the Manual;
   5. (5) other NAIC handbooks, manuals, and instructions, adopted by the department; and
   6. (6) Generally Accepted Accounting Practices.
2. (b) The commissioner adopts by reference the March 2012 version of the Manual, with the exceptions and modifications set forth in subsections (c) and (d) of this section, as the source of accounting principles for the department when analyzing financial reports and for conducting statutory examinations and rehabilitations of insurers and health maintenance organizations licensed in Texas, except where otherwise provided by law. This Manual that is adopted by reference with the exceptions and modifications specified in subsections (c) and (d) of this section will be applied to examinations conducted as of December 31, 2011, and thereafter, and also must be used to prepare all financial statements filed with the department for reporting periods beginning on or after December 31, 2011.

3. (c) The adopted exceptions and modifications under this subsection must be used to prepare all financial statements required to be filed with the department on or after January 1, 2013, and will be applied to all examinations of those financial statements.

   1. (1) The commissioner adopts by reference the following modifications to the Manual:

      1. (A) Statement of Statutory Accounting Principles (SSAP) Nos. 92, 102, 103, and 104 adopted by the NAIC in calendar year 2012.
      2. (B) Placements revisions to nullify SSAP No. 77 and include real estate sales guidance, related effective dates, and adopted Generally Accepted Accounting Principles references in SSAP No. 40.

      3. (C) The following modifications made by the NAIC in calendar year 2012 to SSAP Nos. 1, 11, 26, 27, 36, 35R, 48, 57, 68, 90, 95, 97, and 101 QA - Clean and 101 QA - Tracked, that do not modify the intent of those or any other SSAP Numbers.

         1. (i) Ref. No. 2004-27: Fund Demand Disclosures for Institutional Business;
         2. (ii) Ref. No. 2011-19: ASU 2010-11: Derivatives and Hedging (Topic 815) - Scope Exception Related to Embedded Credit Derivatives;
         3. (iii) Ref. No. 2011-25: ASU 2011-02, Receivables - A Creditors' Determination of Whether a Restructuring is a Troubled Debt Restructuring;
         4. (iv) Ref. No. 2011-38: ASU 2011-06, Fees Paid to the Federal Government by Health Insurers;
         5. (v) Ref. No. 201142: SSAP No.1 Implementation Guide;
         6. (vi) Ref. No. 2012-01: EITF 06-2: Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FAS No. 43;
         7. (vii) Ref. No. 2012-02: EITF 07-1, Accounting for Collaborative Arrangements;
         8. (viii) Ref. No. 2012-03: Clarifications to SSAP No. 57-Title Insurance;
         9. (ix) Ref. No. 2012-05: Clarification on the Amortization of the Basis Difference;
         10. (x) Ref. No. 2012-07: Adopt EAIW Proposed Revisions to SSAPs - 2000 INTs;
         11. (xi) Ref. No. 2012-08: Paragraph Placement in SSAP No. 86;
         12. (xii) Ref. No. 2012-09: Move Guidance from SSAP No. 95 and Incorporate into SSAP No. 90;
         13. (xiii) Ref. No. 2012-12: Credit for Reinsurance;
         14. (xiv) Ref. No. 2012-13: Reference to Credit Tenant Loans within SSAP No. 26;
         15. (xv) Ref. No. 2012-21: Adopt EAIWG Proposed Revisions to SSAPs - 2001 INTs;
      4. (D) Actuarial Guideline 38 adopted by the NAIC in calendar year 2012.

   2. (2) In addition, the following exceptions and additions are adopted:

      1. (A) Settlement requirements for intercompany transactions are subject to the accounting treatment in Statement of Statutory Accounting Principles (SSAP) No. 25 (previously SSAP No. 96 located in Appendix H), except that amounts owed to the reporting entity must be settled by the due date in accord with the written agreement and the requirements of §7.204 of this title (relating to Commissioner's Approval Required). Intercompany balances must be settled within 90 days of the period for which the amounts are being billed; otherwise the balances will be nonadmitted.
      2. (B) Electronic machines, constituting a data processing system or systems and operating systems software used in connection with the business of an insurance company acquired after December 31, 2000, may be an admitted asset as permitted by Insurance Code §§841.004, 861.255, 862.001, and any other applicable law and must be amortized as provided by the Manual.
      3. (C) Furniture, labor-saving devices, machines, and all other office equipment may be admitted as an asset as permitted by the Insurance Code §§841.004, 861.255, 862.001, and any other applicable law and, for property acquired after December 31, 2000, depreciated in full over a period not to exceed five years.
4. (d) A farm mutual insurance company, statewide mutual assessment company, local mutual aid association, or mutual burial association that has less than $6 million in annual direct written premiums need not comply with the Manual.
5. (e) In the event a domestic insurer desires to deviate from the accounting guidance in a Texas statute or any applicable regulation, the insurer must file a written request for a permitted accounting practice and obtain approval prior to using the accounting deviation in a financial statement. The filing must be made with the deputy commissioner of the Financial Regulation Division, Texas Department of Insurance, Mail Code 305-2A, P.O. Box 149104, Austin, Texas 78714-9104 at least 30 days before filing the financial statement that is proposed to be affected by the deviated accounting practice. Insurers must not use a deviated accounting practice without the department's prior approval.
6. (f) This section shall not be construed to either broaden or restrict the authority provided under the Insurance Code to insurers, including health maintenance organizations.

Source Note:The provisions of this §7.18 adopted to be effective January 1, 2001, 25 TexReg 12806; amended to be effective January 1, 2002, 26 TexReg 10897; amended to be effective January 1, 2003, 27 TexReg 12281; amended to be effective March 15, 2004, 29 TexReg 2647; amended to be effective March 7, 2005, 30 TexReg 1287; amended to be effective February 26, 2006, 31 TexReg 1035; amended to be effective October 22, 2007, 32 TexReg 7470; amended to be effective April 27, 2008, 33 TexReg 3293; amended to be effective August 6, 2009, 34 TexReg 5134; amended to be effective January9,2011,35 TexReg 11866; amended to be effective October 22, 2012, 37 TexReg 8329; amended to be effective February 11, 2013, 38 TexReg 661.