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 2008 version of the Accounting Practices and Procedures Manual (Manual) published by the National Association of Insurance Commissioners (NAIC), with the exceptions and additions 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 making a determination on the proper accounting treatment for an insurance or health plan transaction, the Commissioner shall 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 that preempt 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; 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 2008 version of the Manual, with the exceptions and additions 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 adoption by reference shall be applied to examinations conducted as of January 1, 2009 and thereafter, and also shall be used to prepare all financial statements filed with the department for reporting periods beginning on or after January 1, 2009.

3. (c) The Commissioner adopts the exceptions and additions to the Manual specified in paragraphs (1) and (2) of this subsection. Except as provided in paragraph (1)(A) of this subsection concerning Statement of Statutory Accounting Principles No. 98 (SSAP No. 98) and in paragraph (1)(C) of this subsection concerning Actuarial Guideline 43, these exceptions and additions shall be applied to examinations conducted as of January 1, 2009 and thereafter, and also shall be used to prepare all financial statements filed with the department for reporting periods beginning on or after January 1, 2009.

   1. (1) In addition to the statements of statutory accounting principles in the Manual, the following additions and exceptions are adopted by reference:

      1. (A) Statement of Statutory Accounting Principles (SSAP) Nos. 91R and 99, adopted by the NAIC in calendar year 2008 and effective January 1, 2009, and SSAP No. 98, adopted by the NAIC in calendar year 2008 and effective September 30, 2009. SSAP No. 98 shall be applied to examinations conducted as of September 30, 2009, and thereafter, and also shall be used to prepare all financial statements filed with the department filed with the Department after September 30, 2009, beginning with the third quarter 2009 financial statements.

      2. (B) Nonsubstantive modifications to SSAP Nos. 5, 15, 21, 22, 26, 30, 32, 40, 41, 43, 48, 52, 54, 55, 63, 65, 68, 86, and 91 and to the Preamble section of the Manual made by the NAIC in calendar year 2008, as follows:

         1. (i) Ref. No. 2008-25: FSP FAS 133-1 and FIN 45-4: Disclosures about Credit Derivatives and Certain Guarantees, Amendments of FAS 133 and FIN 45, and Clarification of the Effective Date of FAS 161;
         2. (ii) Ref. No. 2008-22: Disclosures for Funding Agreements Issued to a Federal Home Loan Bank;
         3. (iii) Ref. No. 2007-32: EITF 06-5: Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin 85-4 and INT 07-05: Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements;
         4. (iv) Ref. No. 2008-05: FSP FAS 13-2: Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction;
         5. (v) Ref. No. 2008-08: Methods Used to Determine and Report Fair Value of Securities;
         6. (vi) Ref. No. 2007-21: SOP 97-1: Accounting by Participating Mortgage Loan Borrowers;
         7. (vii) Ref. No. 2008-12: Clarification of Accounting for Capital Notes Held as Investments;
         8. (viii) Ref. No. 2002-20: Valuation and Reporting of Residential Interests;
         9. (ix) Ref. No. 2007-34: Use of Audited Tax Basis Financial Statements;
         10. (x) Ref. No. 2007-30: Remove Reference to Health Reserves Guidance Manual;
         11. (xi) Ref. No. 2008-06: Clarification of SSAP No. 63 Regarding Intercompany Pooling Arrangements;
         12. (xii) Ref. No. 2008-03: Discounting of Loss Adjustment Expense Reserves;
         13. (xiii) Ref. No. 2007-36: Goodwill in a Merged Subsidiary;
         14. (xiv) Ref. No. 2008-17: FSP FAS 142-3, Determination of the Useful Life of Intangible Assets;
         15. (xv) Ref. No. 2008-14: Measurement of Sufficient Collateralization for Securities Lending Transactions;
         16. (xvi) Ref. No. 2005-02: Amendment to the Permitted Practices Notice Requirement; and
         17. (xvii) Ref. No. 2008-19: FAS 162, The Hierarchy of Generally Accepted Accounting Principles; and
      3. (C) Actuarial Guidelines 43, 44, and 45, and revised Actuarial Guidelines 34 and 39, issued by the NAIC in calendar year 2008. Actuarial Guideline 43 shall be applied to examinations conducted as of January 1, 2010 and thereafter, and also shall be used to prepare all financial statements filed with the department for reporting periods beginning on or after January 1, 2010.

   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. 96, except that amounts owed to the reporting entity shall be settled by the due date in accordance with the written agreement and the requirements of §7.204 of this title (relating to Commissioner's Approval Required). Intercompany balances shall be settled within 90 days of the period for which the services are being billed; otherwise such balances shall be nonadmitted.
      2. (B) Retrospective premiums must be billed within 60 days of computation and audit premiums must be billed within 60 days of the completion of the audit in determining the beginning date from which the 90 day period is calculated to determine admissibility of uncollected premium balances under SSAP No. 6.
      3. (C) 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 shall be amortized as provided by the Manual. All such property acquired prior to January 1, 2001, may be an admitted asset as permitted by Insurance Code §§841.004, 861.255, 862.001, and any other applicable law, and shall be amortized in full over a period not to exceed ten years.
      4. (D) 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 such property acquired after December 31, 2000, depreciated in full over a period not to exceed five years. All such property acquired prior to January 1, 2001, may be an admitted asset as permitted by Insurance Code §§841.004, 861.255, 862.001, and any other applicable law, and shall be depreciated in full over a period not to exceed ten years.
      5. (E) All certificates of deposit, of any maturity, may be classified as cash and are subject to the accounting treatment contained in SSAP No. 2, notwithstanding the provisions of SSAP No. 26.
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 shall file a written request for a permitted accounting practice. Such filing shall be made with the Senior Associate Commissioner, 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 affected by the deviated accounting practice. Insurers shall not use 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.